Know what Lenders are looking for

When you make a loan application, a lender's primary interest is in whether or not you're likely to fulfill the requirements of a credit agreement. When a creditor lends you money he or she does it with the expectation of earning a profit, which is unlikely to happen if there's a good possibility that you'll default on the loan. The lender will be more willing to act favorably on your loan request if you can be viewed as someone who'll make a full and timely repayment.

Because they're human as well as individuals, lenders vary in their ways of evaluating loan applications. A single lender may use different methods to evaluate different applicants. Some lenders may emphasize personal qualities that were impressive from a face-to-face interview along with opinions from references. Others will strictly follow a list of established guidelines related to income, length of employment, past payments and current debts, and the like. Most lenders, however, take a more intermediate approach, evaluating a loan applicant on the basis of both subjective and objective criteria.

From the lender's standpoint your personal character is a measure of the importance that you place on meeting your own obligations, especially financial ones. A character judgment may be made -- consciously or subconsciously -- primarily on subjective factors, such as your appearance and personal manner at the time that you apply for the loan. Lenders are also likely to put a great deal of weight on the comments of other creditors who've had dealings with you in the past.

But character can also be judged by more objective means. The extent to which you've fulfilled previous credit commitments is likely to be a key consideration when the lender evaluates your character. A number of past loan defaults, for example, will almost certainly be viewed as a serious character flaw for someone who is attempting to borrow money again. The better you are at convincing the lender that you take your obligations seriously and that you can be trusted with someone else's money, the more likely the character issue will be viewed as a plus in your column.

The amount of cash flow that you have available to meet the requirements of a new loan is also a significant consideration for any potential creditor. The larger your income relative to your expenses and existing loan payments, the greater your capacity to make the needed payments on an additional debt. The stability of your income and the security of your employment are both important considerations for the lender as well, especially when you're requesting money for a relatively long period of time. Generally speaking, the more stable your income -- both in amount and source -- the greater your capacity to handle new debt.

Finally, the collateral that you're able to pledge can help to ease a lender's fears concerning financial loss in the event that you're unable to make the required payments on the loan. As a matter of fact, sufficient collateral can often overcome other deficiencies in your loan application. For instance, even though an applicant's character may be suspect and his income barely adequate to qualify for the loan he's seeking, substantial assets to pledge as collateral can assure the lender that no money will be lost on the transaction. The greater the value and liquidity of the assets that you're able to pledge against the loan, the more likely it is that your application will be approved.