You might be aware that the debts you already have may influence on getting one more loan. But did you know how every kind of your debt affects your loan chances? Here is the lowdown on how the kind of debt you have may have impact on your loan chances. We will discuss the effect of mortgages, student loans, personal loans, credit cards / lines and business loans.
You might know that your current debt affects your loan chances. But were you aware that the kind of your current debt is important as well? Below is the information on how your debt of a particular kind impacts your chances of getting a loan. Hopefully it will motivate you to pay off your credit card debt correctly and quickly!
Mortgages
The potential lenders will check your personal credit to see whether you do payments on time (your credit score reflects it). Your debt service coverage ratios can be taken into account as well. These ratios represent your total current debt to the total current income.
If you are a homeowner, the mortgage could be the biggest monthly debt you have. If it is high in comparison with your income, the mortgage can influence your ability to take out a loan. Your potential lenders might think that your debt service ratios are too big compared to the overall income, and you will not be able to repay one more loan.
If you plan to back your loan by collateral, a lender might want to know about your home equity and about the difference between the current market value of your home and the outstanding mortgage amount. In case your mortgage is large and equity is little, you might not be able to get a second mortgage to secure your loan.
Student Loans
There is $1.4 trillion in student loan debt in the U.S. It is not a secret that Student loans affect your ability to get a new loan as well. The small business owners might be so burdened with student loans that no lenders would like to cooperate with them.
It is especially true for the smallest businesses. They have to rely upon their personal credit score to take out a loan for their business. If you want to take out a loan but are overlaid with the student loan, it is worth turning to the alternative lending options, like Personal Money Service with monthly options. This is increasingly more common with business owners or aspiring entrepreneurs dealing with student loan debt.
Personal Loans
According to Experian, your personal and business reports are not linked, but they might be related if you secure your debt by a collateral. Experian also reports that half of the small businesses use their personal credit to finance their businesses.
If you have personal loans like a secured car loan or a signature loan, a lender might check the way you have repaid it. For instance, are you making monthly repayment on time and in full every month? He will analyze your past habits in order to predict the way you will act in case the new debt tops out the other ones.
Credit Card / Credit Line
Unlike student loans and mortgages with their fixed terms, monthly repayment amounts and interest rates, credit lines and credit cards are a revolving credit with the set borrowing limit.
When evaluating your personal credit, the lending institution will also be interested in your revolving credit. If your account is in a good standing, when paying down the balance, you can borrow again to a set limit every time.
Lenders will check what your total debt service ratios could be if you exceeded the limit of all your credit lines and credit cards. They will assess whether your income is high enough to support your monthly payments, plus the payments you would like to make in order to max out revolving credit. A lender will create a scenario in which you have exhausted all your credit lines and have the loan to repay as well.
Business Loan
Do you have a business loan? Have you kept up with the payments carefully and followed all the loan terms and conditions? Did your lender report this to the business credit bureau? If yes, having a business loan could improve your chances of getting a new one, particularly if you want to consolidate it into a bigger loan.
While your poor credit or outstanding debt might make your business loan chances lower, don’t just give up anyway.
It is possible to get small business loans with no credit check even with outstanding debts. You should definitely look for the alternative sources of loans and funding, like invoice financing if your credit card receivables are strong.
Final Advice On Defeating Debts
Do your own research, compare all the available loan offers, and ask questions before signing a loan agreement. For more valuable information on how to avoid or reduce debt and credit card payments, read more articles in the Finance and Loan sections of the Bootstrap Business Blog.
I hope you enjoyed this article about how can debts influence your business loan chances, credit score and overall finances.
Interested in more articles about frugal finance and debts?
Read My Blog Posts:
- How To Run A Profitable & Debt-Free Startup
- Tips To Run Your Company Free Of Debt
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