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3 Important Factors Considered By The Lender In Assessing a Borrower

by World News
3 Important Factors Considered By The Lender In Assessing a Borrower

Loans carry some degree of risk because there is no way of determining whether the borrower will repay the borrowed amount. When borrowers apply for funds, the lender takes into consideration several factors leading to the acceptance or rejection of the application including:

  1. The lender

In lending money, he undertakes a calculated chance; hence, the approval rests on the willingness of the lender to take chances. Some financial institutions embrace strict guidelines for identifying potentially risky borrowers. In case the potential borrowers fail to meet the required guidelines set out by the lender, then they will not be in a position to receive a loan. Other lenders are lenient but in order to compensate for the higher risk, the lenders charge higher interest rates. In case you are experiencing financial problems, you can always get in touch with Rod Aycox. Therefore, you do not have to feel alone. The company offers various financial solutions and services to cater for different life situations.

  • The loan

The lender assesses the stakes involved in lending the money including the potential gain of the lender, the loan period and the amount borrowed as well as the security used as a guarantee. The loan amount will affect whether the lender will approve the loan or not, normally, the smaller the amount, the lower the risk. The lender will most likely approve a smaller loan in the context of the ability of the borrower to repay the loan. A smaller loan often attracts a higher interest yield and shorter loan period, in the interest of the lender.

  • The borrower

The personal circumstances of the borrower will play an important role in the lender making a decision for accepting or rejecting application for the loan. The lender takes into account the financial position of the borrower including their assets & Liabilities, income, the credit history and the presence of a guarantor. Lenders prefer that the borrower earn some reliable income because this is an indication they have regular money to cater for the periodic instalments.

In case you have a security, based on Rod Aycox the lender will be in a position to accept the application of the loan because they stand to gain even in the event of defaulting on the repayments. This is particularly the case for large loan, like money borrowed to buy property, where the financial institution receives the option of selling a house to recoup losses suffered due to the inability to repay the loan.

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