How do entities evaluate your solvency? – Online loansOn November 11, 2019 by Irene Luebke
Having a positive solvency assessment is a decisive element when it comes to obtaining a loan, both in a traditional bank and in an online financial institution.
When your loan application is rejected, it is sometimes difficult to understand the reasons behind the decision.
In fact, financial institutions in Spain are not required to explain the reasons why they do not grant you the requested loan.
For this reason, we believe it is important to understand how lenders evaluate your creditworthiness in practice and what are the factors that play an important role in such evaluation, because in this way you can increase the probability that your loan application will be approved.
Thus, in this article we will learn how lenders assess your creditworthiness after receiving your loan application.
What does it mean to be solvent?
If you want to apply for an online loan or any other financing product, the first move that the lender will make is to evaluate your creditworthiness and your financial situation.
The evaluation of your creditworthiness will be carried out every time you want to request a loan.
Assessing your creditworthiness is a practice carried out by absolutely all lenders and banks, either to obtain a loan of a minimum amount or if you need a larger amount.
The reason for conducting a solvency assessment is very simple: in the end, what financial institutions want is not to face too severe default risks.
For this reason, the lenders will analyze your economic situation and make sure that you can afford to borrow money and that, in addition, you are able to face the repayment of the amount borrowed in the time agreed in the contract.
However, this evaluation is not as rigorous as it was a while ago, and it is much less so in the case of online financial institutions, now being able to get even online loans while in ASNEF and, also, online loans on the spot.
In fact, when you apply for an online loan, it is not necessary to present the large amount of documentation required by traditional banks, so the waiting time to know the answer to your request decreases dramatically, and thanks to that, we have financial products such as Online credits for immediate response.
The reason is simple, online companies make use of automated computer systems, which have been developed using algorithms that, analyzing the applicant’s data, estimate the risk of default associated with the opening of the loan, allowing an automatic analysis of their economic situation.
The only thing that is needed to carry out this study is for the client to provide their online banking identification data so that the automatic verification system can access their financial information.
When this study happens instantaneously, the response time about the rejection or granting of the loan is only a few minutes.
Why is it important to have a good solvency assessment?
The more positive your solvency assessment is, the more likely you are that your loan application will be accepted.
Remember that the solvency assessment determines if you are financially able to repay your loan, so if your solvency assessment is not good, you will only have access to loans with very high interest rates due to the associated default risk.
If your creditworthiness assessment is strictly negative, you may see all your loan applications denied.
Therefore, it is necessary that you make an effort to improve your creditworthiness before you send the loan application.
What factors influence your solvency assessment?
You should keep in mind that each lender present in the market has different requirements that you must meet.
Therefore, you should take time to read carefully the terms and conditions of each of the lenders in which you are interested before you send the loan application.
Some factors that have a decisive influence on your solvency assessment are, for example, your income / expenses ratio, that is, the fixed expenses you have on a monthly basis (rent, bill payment, service subscriptions) subtracted from the income that You acquire monthly, either from a payroll, an unemployment benefit or a scholarship.
It will also take into account, among others, your working life, your family situation or the assets registered in your name.
In this way, if you are able to prove that your financial situation is good, you will have better conditions at the time of approval of your application, even in the cheapest loans you find in the market.
From Bankate, we have decided to prepare an illustrative guide that we hope will help you create an overview of all the factors that influence your creditworthiness assessment by lenders.
Keep in mind that small improvements can bring you great benefits!
What are guarantees and what types are there?
Guarantees is a way of responding to a bad situation or explained in another way, it is to demonstrate to the banking entity your ability to face a payment thanks to certain possessions. They can be of two types:
In the case of not being able to face a debt, the subject ensures compliance through his present and future assets. In this case, the guarantors may compromise their personal guarantee in order to help the debtor persons or persons.
In the case of real guarantees, the goods are considered tangible, that is, goods that can be touched in order to face a payment. There are two types of real guarantees:
- Mortgage. The good subject to collateral is usually a property belonging to the debtor as well as parking lots, the usual home, second home, etc.
- Pledge or pledge. Pledge can be goods that we offer as personal belongings, machinery or furniture. The pledge is understood as goods in the form of rights as well, some examples could be: an investment fund, balance in personal accounts, sales contracts, etc.