How does a Lender Process Your Loan Application?

How does a Lender Process Your Loan Application?

Have you ever wondered how a loan provider might process your application when applying for credit - whether for a short-term loan, a bond, or another form of finance? 

Credit providers are required to screen loan applicants to ensure that they lend responsibly, and that a borrower can afford to repay their debt over time. Here, we'll break down just how a loan lender might process your application.

Age check

Credit providers are required to comply with government regulation, which means that they can only lend to people who are above the age of 18 and are legal adults. This is not only to prevent a minor (an underage person) from becoming indebted, but further to ensure that someone who takes out a loan can comfortably repay what they have borrowed with interest.

Credit score check

Credit providers use a credit score (maintained by different credit bureaus) to see a potential borrower’s habits. A credit score is an overview of your borrowing history and habits that results in a total score. From looking at this report, a credit provider can understand how likely you are to repay a loan on time, and if you have defaulted in the past.

There are many different credit bureaus, and many use a different standard score to calculate their report – meaning that if you receive your report from many different credit bureaus, your total score might differ by a great amount.

While loan providers are unlikely to lend to someone with a low credit score, it’s worthwhile to understand what your score means and what you could do to improve. If you’re interested, why not explore how a low credit score affects your borrowing?

Employment / income check

The next thing a loan provider will want to check is whether you are presently employed, or whether you have existing income to satisfy your expenses in the event that you are not employed or if you are, for example, retired.

This is done so that a credit provider can ensure that you do have a form of income that you could use to repay a loan, and that you would not fall into arrears or be unable to repay with interest.

Low debt-to-income ratio

A credit provider will also look at your debt-to-income ratio – that is, how much debt you need to repay versus the total amount of income you receive. This is done to ensure that your expenses do not exceed your income, and so that a credit provider can rest assured that you are not necessarily using an existing loan to repay another, which is sometimes called revolving credit.

What documents do I need?

Different credit providers can require different documents when processing your loan application – this can range from needing to examine your ID (identity document) or passport to verify your identity, or can include your payslip or bank statement.

At Wonga, we only need to see that you have a form of income to repay your loan on time – if you are employed, you’re able to upload your latest payslip. Alternatively, if you are unemployed, self-employed, or retired, you can upload a recent bank statement instead.

If you’d like to read further, why not download our handy guide here?

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