Loans 101

Loans 101
May 15, 2024

Consumer loans (personal, auto, recreational) are often a great way for people to achieve a goal – like buying a car or taking a vacation. However, obtaining one is more than just filling out an application. It’s not just about a good credit score and a big income, either.

All lenders have specific criteria and guidelines to consider for borrowers to qualify. Knowing some of the most common is important if you are considering taking out a loan or don’t understand why you’ve been turned down for one.

Credit Report
Lenders review your credit report to assess your financial behavior. A clean credit history, free from late/missed payments, bankruptcies, or foreclosures, enhances your credibility as a borrower. Negative marks on your credit report may raise red flags for lenders and affect your chances for approval. Lots of new debt, and/or a limited credit history may also have an impact on the loan decision. Some lenders use credit scores to determine the interest rate for the loan.

Income and Employment
Lenders need assurance that you have a stable source of income to repay the loan. They typically require information about employment and income and may request pay stubs or W-2 forms. Self-employed individuals may need to provide profit and loss statements or business tax returns to verify their income.

Debt-to-Income Ratio (DTI)
Simply put, this ratio compares your monthly debt payments to your gross monthly income. Lenders use this ratio to evaluate your ability to manage additional debt responsibly. A lower DTI ratio indicates less financial strain and a higher likelihood of loan approval.

Collateral, Down Payment or a Co-Signer
Your lender may require collateral, a down payment or a co-signer to help strengthen the loan request if some of the other requirements listed don’t quite meet their guidelines.

At OFCU, we want to help our members succeed and often that means lending them money. On the flip side, we don’t want to create a situation where someone may struggle or fail to make their payments because of a loan they really can’t afford. Every financial institution has policies, procedures and guidelines for lending. Ours are meant to protect our members interests as much as ours. After all, it’s their money we are lending.

If you are interested in applying for a loan now or in the future, or have been turned down in the past, get in touch with us. We are happy to discuss changes or improvements you can make now to qualify for the funds you need.

And, as always, please give us a call at 800.991.9219 if you need assistance or have any questions.