An individual's status determines his influence. This has been true since civilized society evolved. The economic, religious, marital or educational statuses are some of the very common causes that effect the position you occupy in society.
Your loan applications are not too different, in that your economic status is the prime factor in the acceptance or rejection of the same.
What exactly is involved when a lender reviews your status? Especially if the lender is a reputable and licensed one, like for example a bank.
When you apply for a loan from a bank, along with the application form you require to submit certain related documents. These would include, if employed, salary certificates, at least 6 months bank account statement, particulars of other loans taken previously, taxation documents and the like.
If self employed the documents have to declare your assets and sources of funds.
Along with the above, you may need to mention a list of your immovable assets as well.
The bank wants to assess your financial situation, in terms of your repayment capability.
A study of the above and other requested documents would give the lender an accurate report about the same.
The lender can calculate your debt to income ratio by dividing your fixed monthly expenses by your gross monthly income. Generally, if the ratio is above 36% your credit score will be adversely affected as it reveals that you have many debts. However, different lenders have their own policies on what is acceptable and what is not.
Next in line would be your credit ratings. Here is where most of the applicants face a big challenge. Your past credit repayment history will be scrutinized. Have you ever defaulted on a payment? Is there a current unresolved issue with any lender? What about deferments, if any? In general, your credit history will be fair indicator on how your will manage the loan you have applied for.
For these two major criteria, your status can be determined. It is then up to the lender to do any of the following.
The lender may choose to downright refuse the loan. This would be applicable in case you have a poor credit rating. The lender will offer you at a revised higher rate of interest as he takes into account the associated risk. The chances of this happening is more if your credit ratings is not such that would scare the lender away. The lender may request for a co-signatory for the loan, one whose credit ratings have to be much better than your own.
Increasingly in today's free market economies a new type of lenders have a merged that service primarily those borrowers who have a bad credit rating. Of course, the key here is to read carefully the fine print before accepting.
Therefore, it is very clear that your status is the prime factor in determining whether or not you go back full or empty handed.