Getting a loan: what the lender checks, and what you should

The decision almost always reduces to three things: can you pay, have you paid before, and what is left for the lender if you stop. The first is verified, regular income. The second is credit history — and not only arrears: the fact that you have serviced a loan and closed it counts too.

The third is security. Collateral or a guarantor lowers the lender’s risk, and therefore your rate. That is why a car loan or a mortgage is almost always cheaper than a consumer loan of the same size: the lender has something to recover.

Debt burden is assessed separately — how much of your income already goes to existing payments. Even with a clean history and good income, a new loan can be declined when there is little headroom left.

The advertised rate is usually the floor available to an ideal borrower with collateral and a long positive history. Your rate is that floor plus a risk margin the lender assesses individually.

The bigger gap, though, is usually elsewhere: the nominal rate is not the whole price. Origination fees, mandatory insurance and other contract charges make up the total cost of credit. Two offers with an identical nominal rate can differ noticeably in real cost — the total is what to compare.