By giving out loans, banks and other lending institutions engage in risk as they give out sums of cash, hoping that the person will return the money at a later date with accrued interest. With this fact in mind, lenders need to perform due diligence measures before offering a loan to a client. Research has proven that most lenders believe that there should be a robust system in place to assess the eligibility of clients who apply for loans. One of the most used criteria by financial institutions to assess a client’s possibility of repaying a loan is the five C criteria. These 5C’s refer to the capacity to pay a loan, availability of collateral, capital base, character, and conditions. Although many companies embrace the 5cs, factors like age and experience are also put into consideration. One must meet the set standards and schemes drafted by a specific lender to obtain a loan. Good loan repayment helps the smooth running of an economy at large as when the money is repaid, other borrowers are given an opportunity to access funds, thus completing the market cycle. While looking for financial institutions to offer you a loan, it is essential to ensure that you gore for a reputable institution by looking at lender reviews. From the reviews, you will identify reputable loans, uk lenders. Below, the eligibility criteria banks and other financial institutions use to assess their clients are discussed further.
As far as capacity is concerned, a financial institution establishes whether or not the borrower is within the limits of repaying the loan. It simply entails the bank trying to determine the credit history of the borrower. By applying for a loan, this automatically gives the bank authority to have a detailed check of your past debt obligations. If you have had a good payment history, your chances of getting your loan application approved are high compared to an individual with a bad loan repayment history.
Financial institutions are usually very keen when giving out loans. While loaning an individual, a bank has to establish whether one has financial capabilities to sustain themselves. For companies, the value of their assets determines the loan amount they’ll a bank will offer them. If a company has good working capital, it is in an excellent position to win ]itsf a lucrative loan. If a company is not well capitalized, chances of getting a loan are low.
Collateral refers to what one has pledged as security for repayment of a loan. It could be in the form of properties, assets, current account savings, among others. The borrower may need to authorize the right of lien in case they default so that the bank can always be safe, and in case of defaulting or non-compliance, the bank may seize the item in question. Collateral minimizes the risk incurred by lenders. Different loans have different forms of collateral; for example, a car loan, the car in question acts as collateral; for a mortgage, its collateral is the home.
This refers to the reputation accorded to an individual or organization in society and the number of reliable references each one possesses. Often, it relates to the credit history prevailing in the market. If you have a higher credit score and have a good reputation, it is easy for banks to give you loans since they rely on past data, which shows one’s commitment to servicing the loans entirely.
The borrower’s condition plays a vital role in determining whether or not their loan application will be approved. For companies operating in high-risk areas, it is generally perceived that their chances of defaulting are high, making it hard for them to get a loan. Always assess your condition before applying for a loan.
Age is an essential factor in determining whether one can get a loan or not. Young people are considered more financially stable and energetic as they still have more years to repay the loan. On the other hand, older people are limited because of their age, the fact that they have fewer working years left, their chances of getting a loan are lesser.
In a nutshell, getting a loan is not just a mere walk in the park. Instead, it involves a lot of things right. There are various types of loans that one can acquire, but the most important thing is knowing how or what to do to get the loan. This article has offered important insights on one’s eligibility to get a loan.