Loan application What to consider?

This guide covers various things about how to apply for a loan. We deal with loan application questions like: how much can you get a loan, how does a credit decision evaluation work, and what if your bank doesn’t approve a loan?

Loan, How Much Can You Get?

Loan, How Much Can You Get?

The question of how much you can get a loan comes up in many ways when it comes to applying for a loan. Can you get enough loan to buy the car or vacation that you dream of?

When looking at a loan, you should focus on how much you need the loan – and what you plan to use it for. Instead, maximizing your loan amount is never a good goal.
Also read: The loan application process – how does it work?

The amount of the loan depends on the applicant

The amount of the loan depends on the applicant

How much you can get for a loan depends on many things. Applying for the largest loan is hardly worth the pleasure of applying for a large loan. Instead, you should think carefully about how much you need a loan.

Applying for a loan and the amount of the loan are affected by, among other things, the applicant’s income and payment history. The basic requirements for getting a loan are usually regular income (such as a job or retirement income) and pure credit history.

If the applicant has a default payment, the loan is usually not available. Only a very few lenders differ from this. However, one exception confirms the rule, but GoodBank also offers GoodBankPrivat loan to the creditless. However, they also have a tight screen: Applicants must have no new default payment entries in the last year. If the applicant has older credit malfunctions, they must have been completed, ie they must have a ref entry.

There are rules of thumb for how big loans a customer can get. For example, Good Finance often assumes that a consumer credit can be obtained three times its monthly income.

Instant Leverages and Loan Limits

Instant Leverages and Loan Limits

Following the tightening of the Quick Leverage Act, many companies have shifted to offering larger loans. The Quick Leverage Act and its interest rate cap only apply to loans of less than $ 2,000. The interest rate cap is based on the principle that the effective annual interest rate of the loan may not exceed 50%. However, the reference rate is not taken into account by the interest rate cap, for example, the annual interest rate with the reference rate may be 50.2%, for example.

In practice, however, many companies offer so-called “flex” or “limit” loans. They always get a loan limit of more than € 2,000, usually € 2,100, when applying for a loan. This is despite the fact that the customer would apply for a loan of, say, EUR 300. When the loan is more than EUR 2,000, it is not subject to the interest rate cap on instant loans. Thus, the annual percentage rate of charge may be significantly higher than 50% and the reference rate.

There is no obligation to increase the entire loan limit, but the customer can only increase the amount he / she intended, for example, EUR 300. However, the customer may be tempted to raise the whole of just over € 2,000, since it is still possible. However, in this case, keep your head cold and remember that you should not borrow more than is necessary.

Focus on total costs

Focus on total costs

Whatever the loan amount, in the end, always pay attention to the total cost of the loan. One good metric should not be confused, such as low monthly interest rates or low opening costs, but should focus on the whole. However, in the end, you will have to pay the full cost, so it is a good idea to get there first.

Total cost refers to all costs that come with a loan. Another measure used is the effective annual interest rate. The annual percentage rate of charge is expressed as a percentage and includes:

  • loan processing costs
  • the advertising costs to be paid for the loan
  • loan opening and service fees

The example helps you to understand why outlining total costs is important, rather than focusing solely on interest, for example. Even a large loan does not necessarily make you happy if you find it expensive in the long run. The loans are not the same, so a comparison before making a loan decision is a good idea.

Loan Terms What are the terms and conditions of the loans?

Banks and finance companies often impose certain conditions on applying for a loan to ensure the customer’s repayment ability and reduce their own risks. In this guide, we will cover the most common terms that can be found on loans.

Loan size in relation to income

Loan size in relation to income

When applying for a loan, do not look blindly at your own income. Traditional banks often do not set a specific threshold for granting a loan, but pay more attention to the size of the loan in relation to its income. For example, many banks consider it a rule of thumb that the monthly installment of a loan should not be 30-40% higher than the monthly gross income.

Good Finance, on the other hand, grants True Credit a maximum of three months’ gross income of the borrower. In practice, all loan providers (except some express brokerage firms) require regular income from the borrower. The value of any collateral may also influence the loan decision.

Therefore, it is more important to understand the relationship between income and expenditure as the loan should always be able to be repaid after all compulsory expenditure so that little money is left to save even in the event of unexpected situations. For this reason, it is worth bearing in mind that banks are also businesses – the amount of credit a bank can offer is just above the customer’s ability to pay. You must always know your solvency and financial situation when applying for a loan.

Regardless of income level, it is particularly important to compare loans before applying. Doing so can save you huge sums of money and getting a cheaper loan within your ability to pay.

However, some lenders have defined minimum income thresholds below which a loan cannot be obtained.

The income thresholds range from € 16,000 to € 18,000.

If your own income and solvency are not sufficient for the loan amount required, some loans may also be applied for with a co-applicant.

Age limits for their loans

Age limits for their loans

In addition to income limits, banks also set age limits for their loans. Already Finnish law says that people under the age of 18 should not be able to get debt, which sets a natural minimum age for loans. Often, however, 18 years is not enough, as the maximum loan age can be 25 years. Age limits are also intended to reduce the risk of loss for banks: banks feel that a 22-year-old is better placed to repay a loan than a newly-aged 18-year-old.

The upper age limits, on the other hand, range from 65 to 75, although not all banks set straight age limits. Elderly borrowers are perceived as a risk due to possible death or illness.

Some providers, such as Good lender and Good Credit, offer a loan security service at an additional cost, which may help repay the loan if the borrower becomes ill, dies or becomes unemployed. Loan protection is also known as payment security or repayment security. However, you should carefully read the terms and conditions of the loan security, the terms vary greatly, even with the same loan provider: for example, Credit offers different collateral payment for 18-64 year olds than 65-75 year olds.

Living in Finland

Living in Finland

When applying for a loan, you should assume that the loan provider requires the applicant to be permanently resident in Finland. It is also often a requirement that the applicant has been residing in Finland for the last 36 months. In addition to the place of residence, a Finnish bank account is the basic assumption when applying for a loan in Finland. On the other hand, there are exceptions to the housing situation, and sometimes Finnish citizenship is sufficient.

The applicant’s place of residence is again linked to the risks mentioned above. Many lenders assume that reliable verification of defaults requires a long period of time, such as 24 months. If the borrower has not lived in Finland for a while, his / her credit history during the stay abroad is empty, which makes it difficult to check the credit history.

If the applicant’s credit history was cleared before moving abroad, you can try contacting your bank to explain the situation. In some cases, the bank may make an exception to this condition. However, it is good to beware that some loan providers are in a strict position.