Looking to qualify for a loan to help pay off your debt? Wondering where to turn? Loan companies focus on four requirements for debt consolidation that will largely determine whether you’ll qualify. Once you’ve submitted the loan, the loan officer then reviews your information and checks your credit history. Some loan companies use an automatic scoring system to rank your credit, where other companies use credit analysts to determine whether you qualify. Regardless of which system they use, here are the four things on your application the lender will be looking at:
Requirements for debt consolidation loan
- Earnings The creditor will first want to know if you’re capable of paying back the loan. Likely they’ll ask for a pay stub as proof of your income, making sure you have a stable and steady job and that you make enough to cover the payments. Several companies will require a certain debt to income ratio, and that your monthly disposable income is between 10% and 15% of your gross income.
- Payment record They’ll want to know your history when it comes to paying back creditors. Have you paid everything on time? Often a late payment or two can increase your interest rate or, if you have a bad history of not paying off bills, will even keep you from qualifying.
- Overall stability This applies to more than just your income. The loan officer will want to know if you’ve been living in the same place for more than two years, and might ask how long you’ve been employed by your current employer.
- Home equity Loan companies are reluctant to give large sums of money to people without collateral. Most creditors require a respectable amount of home equity to qualify for a debt consolidation loan. If you don’t own a home you can still get a debt consolidation loan – it will just be for a whole lot less. As a guideline, you should be able to consolidate $50,000 of debt if you have $60,000 of home equity.
Obviously, owning your own home is huge when it comes to qualifying for a debt consolidation – it plays a part in two of the four requirements above. Many creditors will loosen their standards some if you’re a homeowner. They figure that if you end up not being able to pay, the loan company can always foreclose on your house, sell it and use the proceeds to pay off your loan.
Whatever your situation, make sure you do your research and find a reputable loan consolidation company before you submit your application. Every lending institution has its own set of criteria, so you’ll want to know what you need to qualify before applying.