Loan approval is the process a lender goes through to determine how risky it would be to lend you money. They will check your credit, income, and assets.
Depending on your situation, they may request additional documentation like pay stubs or tax paperwork. They will also review your debt-to-income ratio.
Fixed rate loans
When you opt for a fixed rate loan, the interest rates remain the same throughout the term of your loan. This type of loan is ideal for those who don’t want to deal with the fluctuation in EMI amounts and payment terms. You can even plan your finances better when you choose a fixed rate loan, since the EMI amount is constant.
Unlike variable rates, a fixed rate isn’t sensitive to changes in the market or index rates. As a result, the rate on your fixed-rate loan will stay the same regardless of whether the repo rates by Reserve Bank of India rise or fall. The same goes for when index rates drop, which can save borrowers significant amounts in the long run.
However, there are downsides to choosing a fixed-rate loan. One is that the loan structure may come with fewer features than other options. For example, you might not be able to make redraws or link an offset account to the loan. Additionally, if your lender reduces its home loan rates during the fixed term of your loan, you won’t benefit from this change.
However, if you expect the market to drive interest rates higher in the future, then it may be worth locking in a fixed rate now. It’s possible to get a fixed rate before settlement, but you will likely pay a fee known as a ‘rate lock fee.’
Variable rate loans
Interest rates are rising, which means it’s a good time to consider whether you should apply for a new loan or review your existing one. It’s also a good time to learn about the different kinds of loans available so that you can make an informed decision that could save you money.
Variable rate loans are those that change with the market, and you’ll find them on credit cards, home equity lines of credit, and private student loans. Unlike federal student loans, which only come with fixed rates, these other types of loans can be either fixed or variable, and you can choose to have them on a long-term basis or for a shorter term.
With a variable rate loan, your interest rate will depend on the performance of a benchmark rate, such as the London Interbank Offered Rate (LIBOR) or the prime rate. However, both LIBOR and prime are being eliminated, so some lenders will use the Secured Overnight Financing Rate as a replacement index. Depending on the lender, you may have to pay a margin on top of the base rate to determine your overall loan cost. When comparing loan rates, it’s important to consider the margin and the length of the term. For example, a loan with a lower rate but a longer term will result in more interest charges over the life of the loan.
Good credit loans
Good credit loans are unsecured personal debts that can be used to finance a variety of expenses, including home improvements, consolidating debt or recovering from financial crises. They typically have higher approval odds than other types of debt, such as payday loans or auto loan refinancing, and offer competitive interest rates. However, they aren’t available for everyone. Some lenders only extend these types of loans to consumers with excellent credit scores.
Lenders use a range of factors to determine if someone qualifies for a good credit loan, including their income, employment status and debt-to-income ratio. However, the primary factor is their credit score. Consumers with good to excellent scores have the highest approval odds, while those with fair to poor credit are more likely to be turned down.
Some lenders, especially online ones, make it easy for consumers to pre-qualify without impacting their credit score. This is helpful because it gives people a sense of their eligibility and helps them compare loan offers from multiple lenders.
In addition to checking their credit score, borrowers should consider whether a lender has flexible terms and conditions. For example, some lenders offer benefits such as free credit score monitoring and financial planning resources to help borrowers manage their debts. Others allow borrowers to track their loan via mobile apps and defer payments during hardship.