14 Apr Loans Application for First-Timers: What You Need to Know
Loans can really improve your life. They empower you to finish or begin your education, start a business, have once-in-a-lifetime experiences, and more! In addition, loans enable people to make life-changing purchases, such as vehicles, houses, or debt consolidation. They can change your life for the better, depending on how you use your credit (you pay instalments on time and in full).
Learning what lenders look for in an application and how to properly apply for a loan is crucial to your first steps into the world of debt and credit. If you submit multiple applications when you’re not a suitable loan candidate, your credit score will likely drop.
Let’s discuss what you can expect from your first loan application and how to optimise your candidacy.
What’s in a Loan Application?
Loan applications and lenders ask for information relating to your personal circumstances to assess whether you’re a suitable candidate.
Personal Information
Lenders ask for personal information like your full name, ID number, address (with proof of address like a utility bill or bank statement), and your marital status and number of dependants. This is to gauge your lifestyle and whether you have other financial commitments, living situation, and commitments, such as children.
Employment and Income Details
Creditors need to know you’re employed to make certain you can afford your loan repayments. They’ll ask for your employer (company’s) name and contact details, your job title, how long you’ve been employed there (most lenders usually want you to have a stable job for three to six months before granting you credit), your monthly income (which they’ll verify with bank statements and payslips), and any other income you receive from sources like rental income, investments, or a second job (side hustle).
Expenses and Debts
By law (the National Credit Act), lenders must conduct an affordability assessment to ensure you can afford the loan and won’t default. If they don’t, it’s called reckless lending, which is an offence. They’ll check your credit report to ascertain how much debt you’re in, your monthly instalments compared to your monthly income (called a debt-to-income ratio), and whether you have any derogatory marks, such as debt review, that may prohibit you from accessing credit.
They might also ask for a statement of your expenses (school fees, utilities, subscriptions, etc.) to see whether you can afford to incur further expenses.
Loan Details Requested
Lenders will ask how much you would like to borrow (most personal loan lenders lend up to R350,000), how much time you need to repay the loan (called a term), and why you’re taking out the loan (education, business capital, debt consolidation, etc.).
How to Strengthen Your Candidacy
Lenders look for candidates with low debt-to-income ratios (30% or lower), low living expenses, and a low amount of existing debt.
They also account for your credit score, which can be lower or higher depending on your payment history (which makes a staggering 40% of how your score is calculated). Lower credit scores may indicate that you’ve paid, have a high credit utilisation ratio (your balance amount compared to the total available amount of credit you have available).
Your credit score could also drop when you make multiple hard inquiries (lenders request a copy of your credit report). Multiple hard inquiries demonstrate that you’re desperate for credit, which denotes that your finances may be a mess or poorly managed.
Let Loan Wave Be of Service
Loan Wave can advise you of whether you’re a suitable loan candidate by offering a free soft inquiry on your credit report. We’ll also help you fill out your loan application properly and explain the documents we require to ensure we’re lending you money safely and responsibly.
If you need a personal loan, apply with Loan Wave today.