Whether it’s a personal loan, a car loan, or a mortgage, banks use a handful of criteria when deciding to lend you money. In most cases, banks might be hard to please about your qualifications especially your credit score. If you’re looking to apply for a loan, read on this article to learn the most fundamental characteristics that a bank considers from the very beginning.

1.    Credit History


When it comes to loan applications, banks will surely want to review your personal credit history. That said, it’s essential to obtain a credit report on yourself before you proceed with your credit application. The good thing about getting a report in advance is that you can learn about any inaccuracies and correct them before any damage might happen. Try to figure out which credit reporting company your prospective bank uses and ask a report from them.


2.    Income and Expenses


You should remember that a loan by its nature is something you borrow and must be paid back. Apart from your credit score, the bank will assess how much money you make every month which means that any income you’ll earn will be considered. In most cases, you’ll have higher chances of approval if your monthly debt payments are less than 40-50 percent of your income. Banks will check your monthly income against your existing debts from other loans, as well as housing or utility bills. Hence, your prospective bank will more likely grant your loan if you have a sufficient amount of money to cover your monthly expenses.


3.    Employment History


Ideally, having a history of stable employment will also affect the approval of your loan application. That’s because banks and other lending companies will want to see that you have a capacity to pay off your debts. If you’ve jumped from one job to another or you’re self-employed, you might deal with a stressful battle before you get your application approved. Moreover, you need to understand that working for yourself will not bar your application, but you might have to furnish more documents to prove you’re a qualified candidate for a loan.   


4.    Collateral

When you’re applying for a secured loan like an auto or home loan, you have to give something as collateral. It’s property that’s used to obtain a loan, and it might be seized in the event you fail to repay your installments on the loan.  However, several banks will assess the value of the collateral you pledge. Then, they’ll subtract any existing debt from the value of the collateral, and the remaining amount will be an essential factor in the bank’s decision. So, make sure you have a guarantee ready before securing a secured loan.


5.    Bank Activity


If you apply for a personal loan, you also need to take your banking activity into account. While it doesn’t show up directly on your credit report, it might still impact your chances of getting your loan approved. Thus, if you overdraw your account, make excessive withdrawals, and rack up multiple fees, it can be a red flag that you should be wary of.


6.    Purpose of the loan


Your prospective bank might want to learn your loan’s purpose. Whether it’s used to buy a vehicle or other property, the bank will still consider how you’d like to use the money. Additionally, be ready as the bank might consider other factors like economic and environmental conditions before making a decision. If you’re looking for personal banking solutions that suit your needs, you can click here for more information.


7.    Character


Applying for a personal loan means you should sell yourself well to your bank. In other words, most banks will evaluate your character through references from professionals who have checked your proposals, referrals by some respected community members, involvement in the community, and a past relationship with banks or lenders. If you want a loan approval, make sure you improve your character in front of the bank.




Securing a loan from a bank can be a stressful process. Sometimes, banks will reject your application due to several factors. So, keep these considerations in mind as it helps you to understand how a loan application process works.

Published by Elena Tahora