A look at how Loans are Processed

Everyday thousands of people attain loans for different reasons. Whether it is to purchase a car, home or higher education, most of us can agree that loans are helpful when utilized responsbiley. For many people, a loan makes the difference between keeping their home and losing it. It is an integral part of the economy.

However, before a loan gets approved, there is a process it goes through behind the scenes. Let’s begin with what a loan is.

A “loan” is a monetary operation in which the lender consents to offer the borrower a specific amount of money with the anticipation of complete reimbursement. The exact rules of a loan are likely laid out in the structure of a promissory note or other agreement. In addition to the basic amount of the loan, the lender can request for interest payments.

The borrower must settle for the repayment terms, in addition to the amount that is owed, due dates and rate of interest. Some creditors can also give financial punishments for delinquent payment.

There are many factors a creditor or lender take into consideration before deciding to offer someone a line of credit.

Creditors look at a person’s credit report, credit score, and income to get an idea of what kind of borrower they would be. The creditor does want to take a risk on someone who will be late with payments or not pay at all. This is why a credit report is so useful.

A credit report is a person’s financial report card. It lets the company know what kind of repayment history the person has.

A creditor will look at three different reports as well. Transition, Equifax and Experian are where three separate reports come from. This will give them an even better idea. In some cases, one report will have a higher score than the other. This is another reason why it is important a person request all three credit reports.

The “fico” score is what lenders look for. The higher the “fico” score, the better off the borrower will be. A good “fico” score will be 750 and over. A good fico score will insure a borrower obtains lower interest rates. In the long run, it will save a lot of money. Maintaining a good fico score is vital if a person plans on obtaining any kind of credit.

When all these factors are combined, a lender will able to paint a lucid picture of what kind of person they are dealing with. The next time you apply for a loan, keep in mind what it will go through before it arrives at your front door.