More Than Just Credit Score: What Private Lenders Will Look At

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Flickr user Kurtis Garbutt

Getting a private student loan can be challenging as private lenders require you to submit a detailed financial profile so they can determine whether or not you are likely to be a responsible borrower. Everybody knows the first thing a lender will check is the borrower’s credit score. This one detail tells them a lot about what how you handle your finances and whether they can trust you to make your payments on time.

Just knowing your credit score is not enough for most lenders though. To be doubly sure that they are lending money to a responsible borrower, and that they will get their money back in time, they will want to look at more than just your credit score.

Here are three things private lenders will want to look at not just to decide whether or not to approve your student loan application, but also to determine what rate of interest to charge you.

Employment History & Steady Income

Employment history is an important factor for many lenders who will want to review your employment history over the preceding 24 months at the very least.

A steady history of being with the same company for two or more years is an indication that you are professionally stable. From a lender’s perspective, professionally stable borrowers are more likely to pay back their loans on time for two reasons – firstly because they are earning a steady income and can afford to make the payments, and secondly because they have a record of sticking to their commitments. With a steady job history not only will you find it easier to get private loans, you will also pay lower rates of interest.

If you’ve changed jobs several times in the past two years, there is a risk you may not have any income coming in during the periods you are in-between jobs. This is a cause of concern for lenders who may be reluctant to approve your application. Even if they do lend you money, they are sure charge you a much higher rate of interest to compensate for the higher risk factor.

Debt-To-Income Ratio

Your debt-to-income ratio also plays a key role in whether or not you qualify for a loan. Your debt-to-income ratio compares the amount you spend every month on necessities such as rent or mortgage payments and utilities versus the amount you earn every month.

Most lenders will readily approve your loan application if you have a low debt-to-income ratio, which indicates that your monthly income is higher than what you need to spend on necessities every month.

On the other hand, a higher debt-to-income ratio, which indicates you do not earn enough to cover your essential monthly payments, puts you in the high risk bracket. Private lenders will be more reluctant to loan you money and those who do will impose higher interest rates on the amount you borrow.

Home Stability

While this is not a major factor in approving loan applications, home stability can tip the scales in your favor. Home stability, or staying in one home for an extended period of time is proof that you’ve been making your rental payments or mortgage payments on time. This puts you in the good credit risk category making it easier for you to get approved for a loan.

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