5 Things You Must Have Before a Lender Approves Your Loan Application


When you, a customer of a Financial Institution/Lender, apply for a loan, your chance of that application getting granted or declined is utterly based on your creditworthiness. Your creditworthiness is the CV that dictates your potential through your credit history. This helps the credit analyst to make a good business and risk decision on your application. As experts will say, most bad loans are no accidents. 

Have you been asking yourself how do I get my loan approved? This article is going to take its readers through the 5 things lenders are looking for in your loan application before granting you the loan.

Lenders have special staff called credit analysts who are specifically trained to examine the credentials of the potential borrower in tandem with the terms of the proposed credit.

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To make things easier, credit analysts have developed a simple, straightforward, and reliable method to make informed decisions on loan applications. It is called the 5 C’s.

What are the 5 C’s?

C – Character

C – Capacity

C – Capital

C – Collateral

C – Conditions


So, now we are going to pick these C’s to explain them one by one.

C – Character

Character simply refers to the potential borrower’s reputation and track record. Through the credit reports provided by the Credit Risk Management System (CRMS), the credit analysts can have a full view of your history of repaying debts. The prompt payments, the delays, the delinquent debts, litigations, and other vital detailed information can be boldly seen and analyzed by the credit team. 

All these factors contribute to the scores you get during the credit review. In credit, your history is a big factor in determining your creditworthiness. Your creditworthiness ultimately determines your credit limit, credit tenor, and so on. 

C – Capacity

Capacity assesses a borrower’s ability to repay a loan by comparing income to recurrent debts and calculating the debt-to-income (DTI) ratio. 

Lenders compute DTI by totaling a borrower’s monthly loan payments and dividing them by the borrower’s gross monthly income. Every lender is different, however many prefer an applicant’s DTI to be around 33.3333% or below before approving a fresh financing application.

The lower an applicant’s DTI, the greater his or her chances of getting a new loan.

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C – Capital

Lenders, banks, and other financial institutions also take into account any funds that the borrower contributes to the potential loan. Most Nigerian banks insist of the customer contributing a minimum of 20-30% equity contribution. 

To be honest, a substantial contribution by the borrower reduces the likelihood of default. Borrowers who can make a down payment on a property, for example, are more likely to get their loan application approved.

C – Collateral

Collateral-backed loans are also known as secured loans or secured debt, understandably so. In fact, a full cash-collateralized loan is considered foolproof, meaning the lender will not lose in case of any default in repayment. 

Borrowers can use good, unencumbered, adequate collateral as leverage to secure good loans on convenient terms. With good collateral, the lender has full comfort that they can easily recoup losses if a default happens. Therefore, the easier it is to recoup collateral if you refuse to repay according to schedule, the better the collateral is regarded.

Safe to say that collateral is a very integral factor in decision making in a credit process, perhaps the most important.

C – Conditions

The loan’s terms – interest rate, the purpose of loan, amount, tenor, and so on, all mix with the lender’s risk appetite to influence the ultimate outcome of your loan application. 

Lenders also take into account variables that are beyond the borrower’s control, such as the status of the economy, industry trends, or pending legislative changes, etc.

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Knowing what your lender/financial institution needs from you, ahead of time, allows you to put yourself in order before the review team starts asking questions. You have a better chance of getting your loan approved if you keep yourself abreast with the 5 C’s Lenders are looking for in your loan application.

The 5 C’s are the ultimate areas your loan reviewers are going to look at, so you can make intentional efforts to improve in those areas before you present your loan application, to avoid wasting time and other resources.

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