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Thursday, July 30, 2009

Do You Worry About Your Defaults? Apply These Ideas When Making a Loan Application

Knowing what the banks are looking for makes it easier to prepare the loan application so that you can overcome a default. Defaults put you at a massive disadvantage in getting a loan. It is very important to understand what happens to an loan application after you have it submitted for approval. Once you submit a loan. There are two processes.

- Manual checking.
- Automated credit process.


The manual one comes first. Reading the credit report. It is here they can see any defaults you have had in the last five years. If you have a default, any default listed you are in trouble. If it is bad enough they shut the file and immediately say loan declined. No appeal.

From there on it all about loan serviceability and an number of other criteria. Mostly it is automated. So what they are checking? They have a matrix of questions that you have to satisfy.

They take the application, the statements that you have submitted and if all these fill their criteria, you are given an approval; if your application does not fulfil the banks criteria,the bank does not approve the loan. You can appeal and they will reveal and can change the decision.

So it is wise to know what they are looking for before you make the application for a loan. The application form goes into the credit processing of the institution. The first thing they do is obtain a credit report on you. This show covers the last 5 years.

- Shows all applications you have made for credit and what institution.
- Shows any defaults you have had.
- Any current defaults those are unpaid.
- Any associated companies or business activities.
- Any bankrupts on financial or court actions.

Defaults. There are three types of defaults.

Level one. Minor.

Disputes with default filing happy companies like telecommunications companies are the lowest level of defaults. They use the default processes as a stick to get you to pay. This even happens where there is a legitimate dispute. As long as this default is paid in full this is not generally a cause for a decline in application. Having said that you have to do everything in your power to stop them putting the dispute into default.

Level two. Major.

More than two defaults. One default is understandable, as it can happen. Two indicates trouble. Three is red line country. You would need a very good explanation as to why they are there and what you did to repay them. That clearly is enough to stop the application in its tracks.

Having three defaults possibly puts in the category of going from a 5% interest rate client to a 7%+ in mortgages and from a 12% personal loan client to a 20% personal loan client.

Lenders who are targeting the highest grade client will automatically decline you.

It is so important that you keep the companies that you have issues with from placing you on default. One of the best ways is to keep talking to them. Do not get angry and get into heated discussions with them. They know what a default means and the impact it may have on you. They do not want to do it. But the will and they do.

Keys to handling a difficult situation.

- Keep talking to them.
- Enter into an arrangement that not recorded on your credit report.
- Make promises to pay on deadlines.
- Then keep to your promises.


Level three.

Immediate cancellation of the application.

If you have an unpaid default or you are paying the debt off under arrangement. No one will touch you. You can get money at a huge cost and you are putting yourself into incredible risk short medium and long term. The best you can do it go to a financial councilor and do what ever they say.

How to keep your personal credibility.

When dealing with Mortgage Brokers and Banks. Do not under any circumstances try and hide the fact that you have defaults. Many think that they will not be found. They will!

If you deny that you have them and they are on your credit report you lose all your credibility and it is a good reason for the loan application to be canceled.

So make it a policy that you will always answer the question truthfully. This builds respect and credibility. This gives you an opportunity to enclose a letter of explanation to the lender as to the circumstances of the default, the payment and your attitude to the event and it is attached to the application.

John_E_Edwards

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