Why it’s Important to Know How Credit Providers Approve Loans.

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When you apply for a loan chances are that you are looking for a convenient solution. The last thing you need is a stressful and difficult application process. The one way you can ensure that you avoid this is by understanding the fundamentals of what credit providers look for before they approve loans.

This way you can improve your chances of approval.

Here’s what you need to know about how credit providers approve loans

Creditors first need to determine if you’re a reliable client. This is why a credit risk assessment is conducted. Your bank statements are also assessed in order to see what current financial obligations you have. For a credit provider, they will want to see how much disposable income you have over a 3 to 6 month period.

An import ant element of assessing credit risk is looking at your previous payment behaviour. If you have a habit of making late payments credit bureaus will flag you as a risky client. Credit providers want to be assured that you will pay on time and that you fulfil your credit obligations.

With some credit providers employment is an important factor , along with how much income you earn.

In South Africa, financial institutions that offer short term loans are required to be registered with the National Credit Regulator (NCR) and they must operate according to laws set by the National Credit Act.

Traditional lending institutions such as banks often have strict lending criteria, so you need to keep this in mind.

Your credit score is important, so you need to make sure that you have a good credit score before you apply. If you have a poor credit score you can also apply, but you need to keep in mind that your interest rate will be higher.

If you opt for a secured loan as the short term loan of your choice you need to keep in mind that the asset you put up as collateral could be repossessed by the lender and sold if you default.

Before applying for a particular loan it’s important to do your research in order to know how credit providers approve loans.

 

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