How Lenders Decide: The hurdles to personal loan approval

Before you gag, relax in the knowledge that Cashco Financial’s process of approving a loan was designed to work in the real world you live in. Applying is easy and you can do it online. You need to be at least 18 years old, provide proof of income, have an active bank account (at least 60 days) and a piece of provincial ID, such as a driver’s license. If you don’t have an account, Cashco offers an easy to open Everyday Use Account (with an automatic $25 overdraft that can be upped to $500) and a Savings Account.

That’s all you need to apply for a Flex Loan up to $5,000, which you can repay in up to 36 months.

Now that we got that out of the way and to give you some perspective, here is what happens at the more traditional lenders. Please hold your gag until the end. We sifted through some of the information that was more relevant to business loans (such as financial statements, business plans etc.), which require a greater depth of information and assessment, and decided to exclude it. The focus here is directed to personal loans.

THE QUESTIONS and the QUESTIONS

1. What are you going to do with the loan?
2. How much do you want?
3. When do you need the funds?
4. How much time do you need to repay the loan?
5. How are you going to pay back the loan.
6. How much risk are we taking with you?

This is where the lender offers you that not so reassuring, half-smile that really says you look like a nice person and this probably won’t be going too much farther, but we’ll entertain ourselves a little longer.

Then they dive into something often referred to as the five “C’s”: character, collateral (security), capacity, capital and conditions.

CHARACTER

To assess your integrity, lenders look at your history, both your repayment and savings history. The other two factors include your work history and the stuff in your credit bureau history. They are looking for stability and predictability. This requires you to dig up things like bank statements and GST and tax returns.

COLLATERAL

If you are applying for a small personal loan, many lenders will steer you to an unsecured line of credit, which, for argument’s sake, is like having another credit card without having another credit card.

If the loan is sizable, then they want to see what you have in the way of assets, like property, vehicles and other investments. They take that information, throw it into a calculating blender to see if the value of the asset (more specifically a lower percentage of that value) is enough to protect their interests. So, more paperwork, like proof of title and asset statements detailing depreciation  --- and so on --- and on --- and on.

CAPACITY

Essentially, capacity focuses on your ability to repay, which requires an evaluation of your income against your existing debts. This will include credit card debt, mortgages, living expenses and dependents. Then they bafflegab you with words like “ratio”.

CAPITAL

This is more relevant to business loans, but it bears a mention insofar as it looks at something they call “liquidity”. In other words, if things go sideways, how quickly can you sell what you have to pay off the loan. For most of us, it might be how much we get out of the garage sale.

CONDITIONS

This refers to the terms the lender extends to you such as interest rate, period of repayment and what will happen to you if you cannot repay your loan.

This not intended to assail traditional lenders. They are subject to shareholders and compliance policies that are designed to guarantee their sustainability. Given the financial struggles of many Canadians, lenders must be able to navigate their economic well being with a certain amount of certainty.

Cashco Financial recognizes this reality, which is why the company teamed up with ATB Financial to offer something to work for those Canadians who are most often denied approval by traditional lenders.

Need a small personal loan? The package Cashco offers is a one-stop financial solution: banking accounts you can open immediately and Flex Loans that require four pieces of basic information. Who said the real world can’t make life easier …