In 2020, the demand for loans fell, but banks tightened their restrictions for borrowers. And for good reason. The pandemic has increased everyone’s credit risk, putting banks and alternative lenders at a disadvantage.

Credit risk is the possibility of a borrower defaulting on their loan. Basically, it’s the risk of a borrower failing to pay back. Every borrower has a certain amount of credit risk. The lower it is, the more likely they’d get a loan with favorable terms.

Many people faced financial problems during the pandemic, affecting their monthly obligations, such as loan repayments. This pushed banks to tighten their restrictions to reduce the risks on their end. But housing skyrocketed in demand during the pandemic, making mortgage loans in demand as well. But did many people get approved for the loan?

If you want to buy a house today, getting approved for a mortgage may be harder, but still 100% possible. Take the challenge as an opportunity to increase your financial discipline. And take note of these requirements before applying:

Requirements for Bank Loans

A high credit score is a primary requirement for any loan. It reflects your ability to repay and your financial habits. If you have a low credit score, banks can deduce that you’re frequently late with your payments. On the contrary, a high credit score makes banks confident that you’re a trustworthy borrower.

A substantial amount of savings is, of course, a bonus. Even if you don’t have a rich credit history, a hefty savings account strengthens your creditworthiness, provided that you also have a stable income.

For mortgages, specifically, you have the option to get pre-qualified or pre-approved. Pre-qualification estimates how much you can afford to pay for a home. Pre-approval is the process of having your credit checked and verified, allowing banks to approve you for a specific loan term before you even apply.

Between the two, pre-approval is more beneficial. It’s as good as getting the loan itself. Here are the requirements for the process:

  • Good credit
  • Proof of assets and income
  • Employment verification
  • Other documentation required by the bank

The pre-approval lasts for 60 to 90 days. Hence, you must maintain your good credit for that period. These requirements also apply for other loans, like car loans and unsecured personal loans. But for a car loan, collateral is usually required. It’s a piece of your assets the bank can seize if you default on the loan. The car itself is the collateral for a car loan, but in other secured loans, it can be any other asset.

Why Banks are the Best Creditor

Despite a bank’s stringent requirements, they’re still the best creditor. They’re more secure than alternative lenders, and they offer options for low-income borrowers.

The money you get from banks comes from other people’s deposits. Here’s how they work: they accept money in the form of deposits, then distribute that money in the form of loans. Thus, as long as a bank has a steady stream of clients, they’ll always have funds available. They don’t have a high risk of going bankrupt.

In addition, if you have a deposit account in a particular bank, you form a relationship with that bank. As such, the bank is already familiar with your records and can be more confident about your ability to repay a loan.

Hacks to Growing Your Savings Account

Since your savings account plays a major role in getting a loan, growing it can also grow your approval chances. Here are some hacks to do just that:

  • Choose a reputable bank. A secure personal banking account ensures that your deposits can earn interest over time.
  • Consider a time deposit account. A savings account alone doesn’t reduce the temptation to withdraw and spend impulsively. But a time deposit account can. It keeps your money for a specific period, and by the time of maturity, your deposit has already earned interest. If you withdraw the money ahead of its maturity, the bank will charge you a penalty.
  • Invest your money. Don’t just let your savings sit there and earn meager interest. Investing is the best — albeit not the fastest — way to grow your savings. For beginners, low-risk investments such as treasury bonds are ideal. They don’t have the highest returns, but they’re more secure than stocks, for example. Stocks are preferred by seasoned investors because of their high returns but high risk.
  • Consider real estate investment. A home is a liability, but you can turn it into an asset if you rent it out. You can even rent out a home under a mortgage. Earning through real estate is one of the most secure ways to grow your income.

With hefty savings and an investment portfolio, banks will determine that you’re a trustworthy borrower. So don’t waste the opportunities; banks may only get stricter in the future.


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