Life would be a whole lot easier if we never had to be in debt and if magically, we always had access to like N1,000,0000 at our beck and call. But even though our chances of never having to take a loan are slim, we can still manage and maximize the loans we get.
So let me share 4 secrets about loans which you need to know.
Trust me – you’ll be managing your loans better as long as you know these tips by heart.
When you apply for a loan the lender wants to know you can pay back the money as agreed and so will look at your creditworthiness or how you’ve managed debt and whether you can take on more. This is done by checking what’s called the five C’s of credit: character, capacity, capital, collateral and conditions.
Character refers to your credit history, or how you’ve managed debt in the past. You start developing that credit history when you take out credit cards and loans.
Your capacity refers to your ability to repay loans. Lenders can check your capacity by looking at how much debt you have and comparing it to how much income you earn.
Capital includes your savings, investments and assets that you are willing to put toward your loan.
Collateral is something you can provide as security, typically for a secured loan or secured credit card. If you can’t make payments, the lender or credit card issuer can take your collateral. Providing collateral may help you secure a loan or credit card if you don’t qualify based on your creditworthiness.
Conditions include other information that helps determine whether you qualify for credit and the terms you receive. For instance, lenders may consider these factors before lending you money: How you plan to use the money & External factors like how the economy is, federal interest rates and industry trends—before providing you with credit.
The five C’s of credit help lenders evaluate risk and look at a borrower’s creditworthiness. They also help lenders determine how much an applicant can borrow and what their interest rate will be. The five C’s of credit are also important for you to understand whether you want to apply for credit. You can use them as a checklist to guide your own finances. It may be helpful to keep the five C’s of credit in mind as you build credit and work toward your financial goals. Showing a history of responsible credit use that reflects the five C’s of credit can put you in a better position to get the financing you need. Read more