A course in borrowing 101

The lending process

BY CLAUDJA WILLIAMS

Wednesday, August 23, 2017

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THE LENDING APPLICATION PROCESS

Upon approaching an institution to request a loan for any purpose, you will be asked to provide some or all of the following documents:

• xempmargin;A current government-issued ID

• Tax Registration Number

• xempmargin;Proof of address, usually in the form of a utility bill or bank statement

• xempmargin;Last three (3) months' pay slips and/or a job letter if you are employed. If you receive variable pay, you may be asked to provide your last 6 months' pay slips

• xempmargin;Bank statements, auditor's confirmations and/or financial statements if you are self-employed

• xempmargin;A signed authorisation to access your credit report from an approved credit bureau

Once these documents have been provided, the institution will then ask you to complete a loan application. This application will contain questions which will allow the institution to determine whether you are able to repay a loan based on your income, as well as to determine the probability that you may default on that loan, and if so, the possible loss to the institution. The loan application usually asks questions about:

1. Income

2. Expenses

3. Dependents (if any)

4. Any assets owned (e.g. savings, investments, property or motor vehicles)

5. Current and previous employment and the length of time spent at each

6. Current and previous living address and the length of time spent at each

In addition to completing the loan application form, a loans officer may meet with you for a loan interview. This helps the lenders to clarify and verify information provided on your application as well as to delve deeper and obtain any useful information which may not have been provided on the application form.

ASSESMENT

The information gathered from the loan application and the loan interview will allow the lender to determine your affordability and your stability. Any and all information provided to the bank, whether intentionally or inadvertently, will be used to assess your creditworthiness.

Generally, people with a higher income compared to expenses are more likely to be able to meet their loan payments consistently. Individuals with families, stable jobs and stable living arrangements are viewed as less likely to default.

Based on your responses, the lender will assign you a credit score. A credit score is a number or code assigned to a person or group of people, which allows a lender to quantify their creditworthiness. More technically, a credit score is a statistical representation of a person's probability of defaulting on a loan. It is also an indication of financial health.

Next week we will look at the key inputs in a credit score.

Claudja Williams works as a consumer advocate in the financial sector. The views expressed are her own.

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