Applying for a loan these days could not be easier, everything is done online. All our banking can be done online now as well. You can pay bills, transfer money, even pay in cheques using a mobile application.

Cheques? When was the last time anyone used a cheque?

The fact is with most things financial having moved online, including applying for a loan, the application processes have been streamlined, and the results, approval or rejection are quicker.

However, in order to speed up the loan process, lenders need to gather very specific information, and be able to make their decision quickly.

So what is that very specific information?

Income and Expenses = Affordability

Affordability is one of the two main factors in determining to approve or reject a loan.

Lenders ask you to complete online, or if on the phone, state your income and expenses. This allows them to see if you can afford to repay the loan or not.

In the past some lenders were accused and found to not having completed affordability checks, which caused a high default rate, and also fines by the financial regulators.

Of course lenders may not just take your word on what you earn and what your monthly expenses are, they can request documentation, or even bank statements.

What the lender is looking at when determining affordability to repay a loan can be various ratios. The ration of all your total monthly bills to your income, and also all your other debts/loans against your monthly income.

High ratios can show an affordability issue, and could be cause to reject a loan application.

Credit Scores

If there is one thing that changed the credit world around, it was credit scoring. In fact, the future of credit scoring is taking to a whole new level, and that is Social Credit Scores.

But let’s not get too ahead of ourselves.

Credit scores are a numerical assignment based on factors that is used to determine your ability to repay a loan. Actually is not so much ability to repay a loan, as it is how you have paid your bills and debts in the past.

And credit scores weigh heavily as to if a loan application is approved or rejected.

Credit scores are currently based on the following factors:

Lenders need to weigh these two main factors, affordability and credit score in determining to grant a loan.

Even if you can show you can afford to repay a loan, if you have a low credit score, a lender could condition the loan requiring you to have a guarantor.

Having a high or good credit score, but not being able to show you can afford to repay a loan, could also be reason to not grant the loan.

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