What Questions Can You Expect from a Lender?
Online borrowing is not a new concept, and it is a more convenient method than traditional borrowing. If you want to apply for a loan, whether short term or long term, the first step you need to do is fill up the application form online.
It seems easy to apply for a loan online because you have to fill up your personal details and submit income documents so your lender can decide the disbursal limit subject to your affordability.
Most of the lenders advertise their loan products as “2-minute application”, and many of you take it as “disbursal in 2 minutes”. However, this term means it takes a couple of minutes to fill up the form online.
Whether you are applying for short-term loans in Ireland or long-term loans, a lender will check your credit score. According to FCA guidelines, a lender must check a credit report before approving the application unless it is subject to a loan that requires no credit check.
In most of the short-term loans, lenders will not ask you questions about your repayment and the purpose of the loan, but they will do if you are borrowing a significant amount of money. Here are the questions that a lender will likely ask you when you put in the loan application.
How will you use that money?
A lender will not ask you this question if you are applying for a short-term loan, but when you apply for a business loan, they will get to know the answer to this question. You cannot get a loan by simply saying you need it to increase working capital or you want to buy equipment.
A lender would want to know how that money would contribute growth to your business. They would like to get this money back and therefore try to see if it is a sensible borrowing.
If you say that you are borrowing to repay other debts, you will have your application turned down right away. Make sure that you have a convincing answer to this question, so you get money successfully.
How will you repay the loan?
As this is not your own money, you will have to pay it back to the lender. Before transferring money to your bank account, a lender will show interest in knowing how you will repay.
Affordability is the essential factor that every lender has to consider to ensure that you do not fall behind repayments.
They want to assure that you have enough income to repay the debt. Since unsecured small loans carry a higher interest rate, it becomes more crucial that you do not borrow more than your affordability.
You have to tell your lender how easily you can repay your debt. Remember that if you point at your savings, the lender will not approve your application because savings cannot be considered a part of income.
By asking this question, the lender wants to know how likely you can repay the loan despite the ups and downs of the business.
Can you submit the collateral?
As long as you are borrowing a small amount of money, the lender will not ask you to put collateral. If the borrowing amount is more than £5,000, your lender can ask you to secure it. Sometimes, lenders can do it when they suspect that your financial condition is not that secure.
If you put collateral, you can qualify for a loan with a lower interest rate. If you do not want to place collateral, you can arrange a guarantor. Lenders seek such alternatives to mitigate the risk associated with your application.
By arranging a guarantor, you do not tie the risk to a particular asset, and therefore, you do not need to fear it. However, note that your lender will call upon the guarantor in case you fail to repay your debt.
A lender will always look over your affordability before approving your loan application. They generally do not ask how you will use the money. Still, when the borrowing amount is of a considerable size, they will likely ask you questions mentioned above to ensure your affordability. Make sure that you have convincing answers to these questions to get the loan approved successfully.