People seek loans whenever they need finances. Some take emergency loans while others opt for investments and expansions of their business. However, a loan can become a bad option when the borrower cannot pay it back at the agreed time.
Some conditions determine each individual, business, or countries’ loan amount. Conditions are the major factors that are considered before the loan is disbursed to the borrower’s account. All the lending institutions take them seriously to avoid future regrets.
Most lending institutions consider the borrower’s employment history before granting them a loan. Here the bank will look at the borrower’s current basic salary and for how long he or she has been in that position. The institution might fail to grant loans to citizens who have been working in different companies for shorter periods. Also, a new entry employee has a high chance of failing to get the loan after an application.
This is based on the credit reports that are retrieved from a country’s credit bureau. Lenders calculate the loan amount to give to their customers based on their credit score. A good credit score allows the borrower to acquire huge loans. This also creates a low risk to the lending company.
Debt To Income Ratio
Most banks use DTI while before approving a mortgage loan. The ratio determines the borrower’s capacity to pay back loans. Borrowers with good debt to income ratio stands a high chance of acquiring huge loan amount.
A credit score is different from credit history but the two are interlinked. After a loan application, lenders will seek credit reports from the bureau to check the customer’s history. A bad credit history means no loan can be granted to the borrower. This happens when the customers have been seeking aid from different financial institutions at the same time. It poses a high risk to the lending institution.