Mark Hauser, an industry expert in the consumer lending space, recently published an article explaining how consumer loans work and what lenders look for when considering a loan application. In his article, Hauser outlines seven critical criteria lenders typically consider when deciding on a loan. Let’s take a closer look at each of these criteria.

1. Credit History: Mark Hauser says your credit history is the most crucial factor in any loan approval decision. Lenders will review your credit report to assess your ability to make payments on time and in full. A good credit score indicates that you are a reliable borrower, while a poor credit score suggests the opposite.
2. Income: Lenders’ other essential criterion when evaluating a loan application is your annual income. This can be gauged by reviewing recent pay stubs, tax returns, and other proof of regular income, such as Social Security benefits or alimony payments. The higher your income and the more stable it is, the better terms and interest rate you may be offered for a loan.

3. Payment History: According to Mark Hauser, your payment history is also essential to loan eligibility. A lender will want to see that you have a good history of making payments on time and in full, which indicates that you can manage your finances responsibly.
4. Debt-to-Income Ratio: This ratio measures the amount of debt you owe compared with the income you earn each month. Generally speaking, lenders prefer borrowers whose debt-to-income ratio is below 40%. In other words, if your monthly expenses are less than 40% of your income after taxes, you may need help qualifying for a loan.
5. Collateral: Some lenders may require collateral before granting a loan. Collateral can come in the form of a vehicle, real estate, or another valuable asset that the lender can seize if you fail to make payments on your loan.
6. Purpose: Lenders need to understand what the money will be used for so they can determine whether you are likely to pay back the loan. Some common uses of consumer loans include buying a home, paying off debt, making home improvements, and financing a major purchase such as a car or boat.
7. Repayment Ability: Lenders want to be sure that you will have enough money each month after expenses to comfortably make your monthly loan payments in full and on time. They may look at recent bank statements or financial records to assess your repayment ability.