What does a bank look at when giving a loan?
Introduction
The process of getting a loan, whether it's from a bank or any other lender, is a complex one. You'll need to have all your finances in order before applying for the loan, but if you do have the right information and documents on hand, then the process is easy enough. However, there are still many factors that banks look at when granting loans to potential borrowers. To help you understand what these factors are and how they might affect your ability to get money from them as quickly as possible, and what may delay things even more!
What do banks look at when giving a loan?
When banks evaluate your loan application, they are looking at a lot of different things. You'll likely be asked questions about your credit history and score, as well as debt-to-income ratio and employment history. Banks also want to know if you have liquid assets (money in the bank) or down payment on the property that you plan to buy; this can help them determine how much risk there is with giving out loans.
Credit history and credit score
When applying for a loan, you’ll need to provide the bank with your credit history and credit score.
Credit history is the amount of time you’ve had credit cards in your own name, as well as any other loans or lines of credit that you have taken out. The longer you have had this type of account, the better it is for your financial standing.
A good credit score means that lenders will be willing to give more favorable interest rates on loans or lines of credit because they know that there won't be any trouble repaying them in full over time. It's also important not just because it helps reduce interest costs but also because having good scores means it'll be easier for banks to approve other types of funding (like home equity loans) when needed later down the road!
Debt-to-income ratio
Debt-to-income ratio is the amount of debt you carry compared to your income. The higher the ratio, the more risk a bank takes about your ability to repay their loan. If you have a high DTI, they will require you to put down a larger down payment or pay additional fees on top of what they are charging for your mortgage.
The lower the DTI, meaning less debt burden compared with income: banks will feel more comfortable taking risks with loans because they think it's unlikely that borrowers would default on them if things went wrong (or at least not as quickly).
Employment history
A bank will look at your employment history, including how long you've been employed and what kind of income you're bringing in. They'll also want to know about any challenging circumstances that might affect your ability to repay the loan—such as a layoff or disability.
To determine how much you can borrow, a bank will consider both your current monthly salary and annual income (the amount of money left over after taxes). The amount that lenders typically approve for loans is based on these factors as well; however, there are exceptions depending on whether or not it's necessary for them to lend against collateral such as real estate or stocks/bonds
Liquid assets and down payment
When you apply for a loan, your lender will want to know that you can pay it back. The more liquid your assets are, the better. Liquidity is an important metric because it determines how much money you have available at any given time and how long it'll take you to sell items that would be worth less than their current value if needed.
The down payment is another factor that influences whether or not someone gets approved for a loan. The higher this number is, the less risk there is in loaning out money—and thus lower interest rates on mortgages or car loans (or any other type of debt).
If possible, try putting down 20% of the total amount needed; otherwise put down as much as possible without being too risky!
Purpose of the loan
The purpose of the loan is to help you achieve your goals. If you want to buy a car, then the bank will want to see that you have enough money in order to make the purchase. If you need some extra cash for school tuition or child support payments, then they'll also want proof of income from past sources (like previous jobs).
In other words: banks are looking for ways that their money can be put toward something good!
Conclusion
When you apply for a loan, your bank will consider many factors. You'll need a good credit history, but they don't just want someone who can pay them back right away. If you can show that you have the liquid assets or down payment to make payments on time every month, then they might be willing to give you an interest-only loan with low payments over time.