Loans FAQ

Can you explain what credit scoring is?

Loan companies employ credit scores as a factor in determining your ability to pay off a loan that you want to get. In a credit scoring system, the information that you give along with the information that the lending company possesses about you from both their records and from a credit search will be combined and each important piece of information is allocated a certain number of points to arrive at a score. Based on this score the lending company can determine if you are a good or bad risk. A credit score ensures that applications are all treated equally without any preference or discrimination.
 
How is the interest on a loan charged?

A lending company charges an interest rate for the money that an individual borrows from it in much the same way that a bank pays an interest for the money you put in it. The interest rate that is imposed on a loan will depend on what kind of loan is applied for. The rate can either be a fixed one (the same rate applies for the duration of the loan – this is called fixed rate), or it can change depending on certain economic indicators otherwise known as a variable rate.

What does pre-qualified and pre-approved mean?

A pre-qualification does not mean that you will be getting an approval for your loan if you apply. It merely indicates an estimation of what you could possibly afford in terms of a loan. In a pre-qualification, a loan officer collects basic information related to your finances and then assimilates this information in order to arrive at an estimated loan amount for you.

A pre-approval, on the other hand, is considered a complete decision that also uses the same basic financial information used in a pre-qualification although it also employs your credit report. A pre-approval is already a sign of commitment from the company that you will get the loan.

If my application is denied can I ask the reasons why?

Most lending companies may not give the reason for denying your application but usually what you can do is to order a copy of your credit history from a credit bureau. Upon receiving your copy check if there are any “negative” marks that could be used as a basis for their decision. If there are none then you can ask for a reconsideration of their decision. Usually the lending companies will ask for more documents to support your appeal.

What could be the interest rate that will be imposed on a loan that I will apply for?

The interest rate that will be partnered with your loan will partly depend on factors like your credit record as well as your credit risk. The bigger the risk for the lenders then the higher the interest rate will be imposed on your loan.

Are secured loans easier to get?

In general, it is easier to get approval for a secured loan because the level of risk for the lender is relatively low. This is because the loan is secured by collateral.