A consumer loan is given to an individual or business by a financial institution, usually to finance the purchase of goods or services. The borrower pays the loan back in monthly installments over some time, usually one year to five years, at which point they pay off the remaining balance, and the loan ends. Most consumer loans are unsecured because they are not guaranteed by collateral; however, unsecured loans may come with higher interest rates than secured ones. Mark Hauser has more than 16 years of experience advising business executives, students, and individual consumers about personal finance issues such as debt management, mortgages, credit cards, and other forms of lending. He is an expert on loan criteria as well.
- The Applicant’s Credit Score
Most lenders look at people’s credit scores before they approve them for a loan. Lenders use credit scores to evaluate an applicant’s ability to repay a loan. It is essential to understand that scores are not static and that they can change; for example, if you have taken out one or more new loans in the last seven years, your score may be lower than it was before because you have recently increased your “credit utilization ratio,” or outstanding balances on your joint credit accounts.
- Employment History And Income
Lenders, such as banks and other financial institutions, look at applicants’ credit history and income when evaluating their loan requests. When you apply for a loan, a lender will want to know that you are financially stable enough to repay the borrowed money. Mark Hauser says lenders look at the amount of income you have coming in and make sure you have enough left after paying your bills to pay back a loan.
- Available Liquid Assets
Another factor lenders consider is whether the borrower has enough money to make the required payments. This is especially important if you use a line of credit, such as a home equity loan, to finance your business venture. A lender will also want to know that you have enough cash in an emergency. According to Mark Hauser, if you use your line of credit to finance your project, lenders ensure that there is a significant amount of money in the bank to cover the payments.