Before a loan is granted, the lending institution checks various criteria that must be given as conditions for the applicant to receive the desired funding. The bank mainly deals with the income, the job of the applicant as well as the various collateral.
The requirements for a loan
Mostly only people who are already over 18 years of age receive a loan. However, there is no maximum age. However, it is relatively difficult for a senior citizen to get a loan. For seniors there are in the end only relatively small loan amounts. Dependent on this is the loan amount as well as the repayment term. Another criterion is the residence. Many banks only grant loans if the applicant is ordinarily resident in the country in which the loan is being sought. Furthermore, the bank also checks the income of the applicant. It is important that the borrower has a regular income and can prove his / her permanent employment. Those factors have a positive effect in that the borrower can pay his installments. In the case of an irregular income or a fixed-term employment relationship, it is possible that the bank rejects the loan application or provides a lesser loan amount.
For self-employed people things look different. Even though entrepreneurs sometimes have a higher income than employees, banks are more cautious in lending. This is primarily because the self-employed person does not have a regular income. However, it is important to the bank that the installment payments be punctual and reliable. However, there is no fixed salary for an entrepreneur; Banks operate according to the motto of security and plan the repayment as well as the interest income. For self-employed borrowers, however, it can always lead to changes in income, so that the possibility of a non-timely repayment of installments is increased.
The credit rating
Another criterion is the credit rating. The borrower should have sufficient credit and have no negative private credit bureau entries. Predominantly, a private credit bureau entry has a negative effect on the bank decision. Above all, account cancellations as well as loan cancellations are a knock-out criterion; If such points exist, it is almost impossible for the applicant to obtain the credit. Also consumer insolvencies or affidavits can sometimes be a reason why the loan application is rated negative. Another issue is the amount of credit. It is important that the monthly burden does not overwhelm the applicant’s financial situation. For this reason, the loan rate should not exceed 50 percent of the monthly income. If the bank believes that the amount of the loan is too high or if it is possible that the monthly income will not be enough to cover the new financial situation, the bank may decline the loan application or reduce the loan amount.
Furthermore, any collateral is important to the bank. This means that there should be a risk life insurance policy or various tangible assets available, so that the bank – in case of cases – has a hedge if the borrower can not settle the installment or dies before expiry of the loan repayment. If the applicant decides on a real estate loan, the acquired property is generally used as collateral. In some cases, a guarantee may also be envisaged.
First and foremost, it is important that the applicant has a regular income and permanent employment. Above all, private credit bureau entries have a negative effect. Another advantage is collateral; Without term life insurance, there is usually no funding.