What Lenders Care About When Approving Loans

JUAN P. | May 2, 2024

Applying for a loan can be intimidating, especially if you have never done it before. And it seems like there are different requirements from different lenders, which can add to the confusion and make borrowers worried about whether or not they are barking up the wrong tree. 

But, the more you know about the process and what to expect regarding a loan approval from a lender, the better you can be prepared and the higher your chances of loan approval.

Let’s look at what lenders are looking for when approving loans.

Four Things Lenders Need to Know When Approving Loans 

Consumers take out loans for a variety of reasons. It might be to make home improvements, take a dream vacation (or staycation), cover medical expenses, or perhaps consolidate and pay off debt. But, as we said above, it can be complicated to understand what lenders look for when y"ou submit that application.

Here’s what really matters.

A binder that reads "Credit History", part of a loan requirement

Your Credit History 

You start building a credit history around age 18 or whenever you apply for your first credit product. However, you don’t simply have a great credit score right off the bat. It takes time and a lot of activity to see that score grow upward. 

Your credit score is based on five key criteria: 

  • Your payment history
  • The total balances on your credit cards (and loans)
  • How long you have been using credit
  • The amount of new credit you have
  • Your credit mix

Typically, it takes seven to ten years to grow a credit score that is in the good range or better. And that assumes that you have been making smart financial moves during that time.

Collateral and Assets 

When applying for certain types of loans, mainly secured loans, one of the key loan approval requirements is collateral. Collateral is essentially a safety net for lenders—it's an asset you offer to back the loan, which the lender can seize if you fail to repay the loan. Common examples of collateral include real estate properties, vehicles, savings accounts, or even stocks and bonds. 

Knowing you have valuable assets to cover the loan in case of financial hardship provides a significant level of security and increases your chances of loan approval. 

Cash Flow/ Income Sources 

Lenders also need assurance that you have income sources so that you can handle the loan's financial obligation. Typical income sources that a lender cares about include: 

  • Employment Income: This is the most common source and includes wages, salaries, commissions, bonuses, and any other earnings from your job or self-employment.
  • Rental Income: If you own property that generates rental income, lenders consider this a reliable source of cash flow.
  • Investment Returns: Income from dividends, interest payments, and profits from investments can also be considered, especially if they are consistent.
  • Government Benefits: These can include Social Security benefits, disability payments, or other government-assisted programs that provide regular income.
  • Alimony or Child Support: Regular payments received as part of divorce settlements are also taken into account as a stable income source.
  • Pension or Retirement Income: For retirees, a pension or any form of retirement income demonstrates the ability to meet loan obligations.
  • Part-Time Jobs or Freelancing: Additional earnings from part-time work or freelance gigs can also be considered, provided they offer a steady income. If you wish to disclose your freelancing income, you may be asked to provide bank statements that show your deposits.

A couple celebrating getting their loan approved by a lender

Character Issues/ Red Flags 

If your social security number and personal information are returned with a history of legal issues or criminal action, this can raise a serious red flag for lenders. Though these legal issues may not be money-related, lenders will view them as risks. 

If you have a legal record of any kind, be prepared to explain or defend the actions if you are asked. And, be sure you have documentation in the event you need to submit it. Be sure to always check a lender’s FAQ for information on unique requirements related to your loan application.

Cash Store Offers Installment Loans, Title Loans, and Cash Advance Loans

Whether you are looking for a loan to fund emergency expenses or you are hoping to finance a big purchase, Cash Store can help. Explore our options including installment loans, title loans, and cash advance loans. Ready to get started today? It all starts with our prequalification application. We look forward to reviewing your information and determining if Cash Store has an option for you. 

The content on this page provides general consumer information or tips. It is not financial advice or guidance. Each person’s circumstances are unique. The Cash Store may update this information periodically. This information may also include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs.

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