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How a Bank Looks at a Loan
the 3 c's of consumer credit

Character

Will the customer pay as agreed?

Is the customer stable?

How long have they been on their current job?

How long have they been at their current residence?

Do they have a checking & savings account?

Do they own their home, rent, or live with relatives?

What type of education does the customer have?

What is the customer's occupation?

What is the customer's age?

What types of previous credit history has the customer had?

How have they performed on their previous loans?

How long have they been on the credit bureau?

What was their previous high & low credit balances?

Capacity

Does the customer have the ability to pay back the loan?

Calculate the customer's debt to income ratio (total monthly debts divided by monthly income, lower is better)

Calculate the customer's payment to income ratio ( new loan payment as a percentage of their income)

Does the customer have a co-signor, spouse, significant other, parent, or relative that would be willing to co-sign on the loan.

The closer that the customer is to the maximum limits allowed by the lender the more strict they will be about enforcement of restrictions and stipulations. The bank will ask for more references, multiple pay stubs, multiple tax returns, etc.

Businesses will need to provide financial statements or have a personal guarantor if they are not listed by Dun and Bradstreet, or if they have not previously done business with the lender.

Collateral

What happens if the customer doesn't pay? Will the lender be able to retrieve the collateral? Is the collateral marketable? What would the anticipated loss or resale percentage be?

What is the percentage advance in relationship to the loan value or resale value of the collateral?

Does the customer have a commitment to the loan. Do they have a significant investment? Will they be willing to let the loan default?

What is the term of the loan? The tougher the loan, the more likely that the lender will want to shorten the term. If a loan is at the higher end of the spectrum, the lender will want to collect the loan faster, reducing the term and increasing the cash collateral value in the event of a default.

How will the collateral depreciate during the term of the loan? Will the collateral be subject to heavy use and or abuse (taxi, limousine, etc ).

To score your own loan