Planning on applying for a loan soon? These days, applying for a loan has become more complicated than before.
To no one’s great surprise, lenders are now more thorough in combing through your financial situation when asked for money. These checks are used to highlight spending patterns you may not realise could be detrimental to your chances of securing a loan.
Within the current financial climate, securing a loan is no longer a simple process. As technology has developed, people have been using less cash by tapping away with their credit card. This allows every transaction, whether a necessary and planned exchange, or a purchase made on a whim, to be recorded.
Personal spending habits may include clothing, Uber Eats, holidays, and entertainment subscriptions. Frequent Uber trips may even be seen as staple expenses on a credit card statement. Regular discretionary expenses such as gym memberships, doctors’ appointments, private health memberships and even Netflix are waded through in order to discern and identify all potential liabilities an applicant may be withholding.
With the increased scrutiny on the banking industry, tighter controls are impacting lending practices and may be a possible issue for prospective loan applicants. While it is still possible to secure a loan, regulations and circumstances are now much firmer.
Regular Expenses/ Spending Habits
Various credit schemes such as Zippay and Afterpay are classified as personal debts and are viewed similarly to credit debts. Afterpay works by splitting the cost of your shop into four equal payments, which are made every fortnight.
There doesn’t seem to be a hard and fast rule on how many Afterpay orders you can have on the go at once. Instead, Afterpay’s algorithm looks at a number of different factors – like how many purchases you’ve got to pay off, whether or not you’re meeting repayments and what your history of payments looks like – to choose whether you will be approved for a new purchase.
While Afterpay may be happy to advance you purchase after purchase, if this practise is habitual, lenders will consider this an ongoing expense and average your monthly spend as a financial commitment.
Frequent use of food delivery sources such as UberEats and Deliveroo may be seen as money that is being thrown away, turning the applicant into a problem customer for lending, and turning them into a weaker candidate for larger applications, such as home financing. That weekly grocery buy at the beginning of the week could be seen as a more responsible and controlled lifestyle.
Each time a purchase is made, it will be tracked and analysed as to whether the applicant has the ability to pay back a loan and whether they should be classed as an irresponsible spender.
How to Fix it
Most often, the problems or pitfalls when applying for a loan are discovered after the application is submitted. If this occurs, action to correct or improve your credit check cannot be completed. The best option is to improve the possible liabilities before they are classed as such.
Being better organised and making small changes before the application is submitted can make a huge difference in the outcome. Some simple changes that should be implemented in the months leading up to any loan application include:
- Being Organised. Organisation before application shows an understanding that everything in your bank statements will come under scrutiny.
- Provide as much information as you can. By proving expenditures, school fees, discretionary income, and other reoccurring personal costs, lessen the chance of the bank finding “hidden” expenses that have may be seen as purposefully omitted from the information you have given them and may lessen your chance of approval.
- Minimise unnecessary spending.
- Make informed decisions about purchases, and keep in mind that these purchases are being added to your discretionary spending, therefore, you might not have capacity for the lend of your dreams when it really counts.
- Rely less on food delivery, Afterpay, Zippay and the like.
While the finance industry has not changed the guidelines for potential loan applicants, their application is granted far more stringently than before. Issues that are discovered within a credit application are difficult to overcome, and unnecessary spending can be minimised in the months leading up to an application in order to avoid them.
Making these changes a priority and being prepared when lodging a loan application can have all the difference regarding its approval.
If you need help applying for a loan, contact our team.