What Do Banks Look for in Loan Applicants?
Some people pay every payment. They're just not really very picky about when they get it paid. Banks kind of like these people because they get their money and make a little extra from late fees. They create extra work for the bank employees, but at least they get more money for their troubles.
Other people eventually pay the loan, but they have to chase them down to get it and end up writing off any late fees. Banks really don't care much for these people. Lenders don't make much from these people because of the high cost of recovering their money. Sometimes, they can even lose a little.
The last group, make a few payments and move out of state. The bank will be fortunate to ever hear from them again. They will usually write off the loan and eat the losses. Banks hate these people. They would rather use their money for a bonfire than lend to them.
Lenders believe that if you have a stable residence, job, and credit history that you are a good risk. They like it when your assets outweigh your liabilities. Banks at least want the two to be close enough to wave at each other. If your liabilities are too high, you won't get many loans unless you have collateral, and the loan erases the other debt. Banks make most of their profits by lending money. As loans are repaid, the incoming payments fund future loans. Borrowers who don't pay correctly disrupt the banks business practices.
Published by Allen Teal
Experienced writer in online and journal type publications. I have also done home remodelling and construction. I have a pretty good grasp of car repair, personal relationships, parenting, outdoor life, r... View profile
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2 Comments
Post a CommentBanks only need roughly 10% on deposit. So that $200,000 which never really existed now has blossomed into $2,000,000 which does not really exist and the banks get to use all of this non existent imaginary money to make huge profits made of very real money. Oh and don't believe for a moment that banks don't like to loan money to those low credit/high risk people. They do it everyday and they do it because they win whether or not the loan is repaid. Banks love foreclosers. They receive real assets in place of IOUs.
Banks lend you your own money. What does this mean? When you apply for a mortgage and sign the promissory note, the banks takes that note and deposits it in a secret account with your name on it. In the banking business that promissory note is NOT an IOU, It is Legal tender as good as cash. The bank takes the amount of the promissory note and adds it to it's assets. by signing that note, You just enriched the bank by $200,000 ( or whatever the amount of your mortgage) That's correct. The banks books now have an extra $200,000 thanks to your promise to pay them $200,000 in the future. Congratulations. You just financed your own "loan". The bank has loaned you nothing but your own promise to repay something which you never borrowed in the first place. It gets better. That $200,000 which you gave to the bank can now be used to loan as much as TWO MILLION DOLLARS to other clients thanks to a scam called fractional banking. Of the money they loan out, Banks only need roughly 10% on de