Crucial Factors that Can Affect Your Online Loan Application

Previously, online loans were perceived as undesirable with misconceptions abounding that they sink you further into a debt crisis and trick you through exorbitant interest rates. However, time has proved all that wrong because these loans can play to your advantage. They can help you sort out unforeseen expenses such as emergency car repairs and health bills as well as bridge the gap to your next pay day.

That said, these loans must not be abused and any time you take them, you should be having a mindset of paying them back as soon as you possibly can. Before you click on that button and begin your loan application process, think about the following factors which can impact your loan application success.

Credit History

This is basically a documented profile showing the manner in which you handle credit and your discipline around it. For instance, continually maxing out on your limit may paint a picture that you are overly dependent on credit. This is not the kind of picture you would want to paint to your lender. A positive credit history on the other hand shows that you are capable of managing debt and you honor payments timely.

Source of Income

Depending on the structure of the online loan facility, the repayment period will vary. Some online loans will need to be repaid within two months, others three months and in some special cases you may be given up to 6 months. Whatever the case maybe, your source of income and proof of it is important in determining the success of your application.

Mostly, these loans are advanced to employed borrowers who can show either a certificate of employment or a payslip. You may also be required to send a print out of bank statement or give your lenders a view only access to your bank account. A proof of income serves as a guarantee to the lending institution that you are capable of paying the loan back.

Outstanding Debt

Inasmuch as lending institutions want to get the maximum possible benefit from lending to you, they also have risk to take care of. Because of this, they only lend to you what you can afford to pay back. The common ratio used here is called the debt to income ratio. This is simply an addition of all the debts you have and then divided by your gross monthly income.

A debt to income ratio of 50% may send signals that all is not well because half your gross monthly income goes towards servicing debt. You can even be charged higher interests because of this. Try to keep your ratio below 36%.

The Reason for Application

Some online lenders may ask you to state the reason why you are applying for the loan. The reason you give serves as a benchmark and therefore it is important to ensure it’s not clunky. Most lenders expect emergency situations such as paying for medical expenses or moving costs to be the reasons you are applying for an online loan. Stating reasons such as financing home remodeling, debt consolidation, paying off credit cards, or financing social events may not put you at a stronger position to qualify for the loan.

What Most Online Lenders Ask For

A majority of lenders advance loans to borrowers who have been in stable employment for at least 3 months and have a substantial monthly income of more than a $1000. Proof of citizenship is important because no one would want to lend to a foreigner. Income sources such as disability income, private pension, self-employment, social assistance, and student loans may not be accepted as a valid source of income.

Above everything else, your personal reputation also matters in your success. Some lenders pry into your social media activity to assess your spending habits so that they can hedge themselves against irresponsible borrowers. Always put your best foot forward.