Obtaining a loan can be a crucial need for individuals seeking to fund various expenses. However, the loan approval process can sometimes be perplexing, leaving borrowers wondering about the factors that credit providers consider when making lending decisions.

How Do Credit Providers Choose Whether They Will Give You A Loan Or Not?

When a consumer expresses interest in applying for a line of credit from a registered credit provider, the provider will evaluate the consumer’s credit score to gauge the level of risk involved.  Additionally, the credit provider will perform an affordability assessment. This assessment aims to determine the consumer’s capacity to afford the credit and their monthly repayment obligations. Credit providers use this information to decide whether or not to grant a loan or line of credit. The primary risk they are assessing is the probability of the consumer repaying the debt. 

How Do Credit Providers Price Their Products?

Credit providers determine the pricing of their products based on their risk appetite and overall business strategy. Consequently, when dealing with consumers who pose a higher risk, credit providers may impose higher interest rates. If you fall into the category of high-risk credit criteria, it indicates that you may have limited affordability, a low credit score, or negative information or judgments associated with your credit history. Lower-risk consumers will likely be granted lower interest rates on most debt products.

Do Credit Providers Have Different Loan Criteria?

Credit providers and financial institutions have varying loan criteria, driven by their distinct risk appetites and business strategies. The top five banks, including Standard Bank, Nedbank, Absa, First National Bank (FNB), and Capitec, maintain highly stringent loan criteria. This strict approach is primarily attributed to their ability to offer low-interest rates to consumers. On the other hand, second-tier credit providers may offer relatively lower interest rates to consumers but might assume a higher level of risk in the process.

It’s important to note that short-term and payday lenders typically take on greater risk. This leads them to charge higher interest rates as a result, many offering maximum allowed interest rates.

Does This Mean You Should Shop Around When Looking For Loans? 

In summary, yes, shopping around for a loan is beneficial, but it should be done with caution. It’s important to note that extensively searching for the best loan can have an impact on an individual’s credit score. Additionally, it is crucial to have a clear understanding of the loan type, amount, and associated costs. It’s advisable to find a reputable credit provider offering a favorable interest rate. Moreover, utilizing loan aggregators like ClearScore can provide individuals with valuable insights into the loan options they may be eligible for.

Here’s What You Should Do If You Are Being Rejected Left, Right, And Center

If an individual is facing repeated rejections when inquiring with credit providers, it is important to take a step back and assess the situation. Understanding the reasons behind these rejections is key. One way to gain insight into your creditworthiness is by checking your credit score through a reputable tracker like ClearScore. If the individual has multiple credit accounts with missed payments, adverse information, or legal judgments, it is likely affecting their credit eligibility.

To address this, it is recommended to seek advice from firms that provide free credit report assistance. These organizations can offer valuable guidance on steps the individual can take to improve their credit score.

Furthermore, if other debts burden the individual, exploring a debt management solution may be the best course of action. Debt management solutions are designed to help individuals with excessive debt by reducing monthly payments and interest rates to more manageable levels.