Dealing with Loans

At various stages in our lives many of us will take out a loan from a Financial Institution.

The types of loans that are normally encountered include:

• Home or Mortgage Loans
• Car Purchase Loans
• Loans for Holidays
• Loans for large purchases
• Debt Consolidation

If you need a loan and go to your banker, they will make a decision based on a variety of factors. These considerations have been reduced the simple idea of “the Three Cs of Lending.”

All three factors are important, and a deficit in any one of the three could result in a decreased likelihood of loan approval.

The first C is “capacity.” This refers to your apparent ability to repay the loan requested. Capacity issues are related to your rate of pay and your employment stability.

The second C is “capitalization.” This refers to what you have in savings, investments or other collateral to secure the loan. Banks are reluctant to loan money to those they feel are undercapitalized due to the risk involved in the case of a loan default.

The final C is for “character.” This refers to your payment tendencies and habits and includes carefully analyzing your previous behavior, as well.

Banks want to loan money to strong earners with large cash reserves and a great history of repaying loans. Do you meet those criteria?

The advice and tools in these pages will hopefully assist you in making sure you get the best possible loan for your purposes.

As always we recommend that you seek qualified professional advice before entering into any arrangement or agreement.

Determine Your Available Collateral/Security

Before thinking of applying for a loan you may want to consider what collateral or security you are able to offer should it be required. To obtain and to secure a loan, collateral is what you promise to give to the bank if you do not pay back the loan. The following items can be used as collateral to obtain a loan:

• A home
• A car
• A savings account
• Investments,

The following items cannot be used as collateral:

• Furniture
• Clothing
• Family china
• Store credit cards
• Household goods that you already own cannot be used as collateral. However, items you are purchasing on credit and do not own yet can be considered collateral.
 

Other Pages in this Section

Applying for a Loan
What to do if you are turned down for a Loan