The purpose of loan applications is solely to establish your eligibility and to assure the lender that you would pay back, with interest and on time. Hence, only two things matter in loan applications: your financial health and personal profile.

• Financial health pertains to present income, assets or savings you have, financial liability and source of income or employment history. The income determines how much you can spend and your financial liabilities will determine how much you can save or have to spare. The loan amount you are applying for will be repaid in instalments, which would most likely be monthly. The lender will check if you can afford to pay that instalment every month. The general approach is deducting all existing financial liabilities including monthly expenses from the income. The result should be considerably higher than the instalment that must be re-paid.
• Source of income and employment history will be quintessential factors as that would tell the lender if an applicant has a steady income and if one has been employed long enough to consider it as a secured job or profession. Lenders are not concerned about your entire professional future. They just want to be reassured that you wouldn’t be out of job or be unable to repay the loan because of fluctuating income. If you are self-employed or have a business, then the history of your self-employment or history will be considered.
• Both financial health and personal profile are assessed relatively. The type of loan you are opting for, the loan amount you apply for, the purpose of the loan, term and the instalments that you would have to bear will be kept under consideration while assessing your financial health and personal profile. The personal profile includes everything from your professional experience to your academic qualification. Not all lenders ask for these details but high loan amounts will call for increased scrutiny.
• Your credit score will be the next checkpoint, followed by savings and investments. Your existing liabilities or loans will also be considered. Credit score obviously tells a lender if you have re-paid your past loans or have been good at repayment. Savings and investments will assure the lender that the applicant is bankable. Existing loans and other liabilities will tell the lender if you will be able to manage an additional financial obligation.

 

Lenders look for clarity, accurate details, truthful declarations and honest conversations.

The path to securing your loan or credit can seem like an enormously challenging one. This is particularly true for those who have never applied for a loan/credit before. When you consider the list of types of interest rates alone, it’s easy to become a little frustrated.

Nonetheless, the more you understand now, the easier the loan process will be for you. This thought can certainly be extended towards the different types of interest rates that are available to you. But remember – your YFG Lending Specialist is there to help you navigate through all of the options and find the best one for you!

Which Interest Rate Is Right For Me?

Regardless of the interest rate you choose, it’s important to understand that interest rates are responsible for determining how much your loan is going to cost you. It will also determine what you are required to repay each month. The slightest difference to interest rates can play a significant role in how your repayments are determined.

With that thought in mind, here are the different types of interest rates you are going to come across:

• Principle and Interest (P&I): With this interest type, the loan payment will cover your interest charge, in addition to a portion of your original loan amount. This will reduce your loan balance, over the course of the life of your loan.
• Interest Only: You’re going to agree to pay your interest charges for an agreed upon period of time. This is usually five years. With most loans, you’re going to find yourself reverting to P&I after a certain period.
• Variable Home Loans: You’ll note that the interest rate charged will move up and down in sync with various indicators, generally your Reverse Bank Cash Rate. If this rate increases, you can expect increases to the home loan rate by roughly the same amount.
• Fixed Interest Rate Home Loans: This loan type is going to lock you into an interest rate for a specific period of time. This period is generally anywhere between one to five years, although some people pursue options that allow the period to extend.
• Partially-Fixed Rate: Also known as a split loan, this option will allow you to pay a fixed rate for a certain portion of time, followed by a variable rate for the rest of the life of your loan.
• Introductory Rates: Also known as honeymoon rates, an introductory rate generally involves a lender giving you low interest rates for the first year or two of your loan.

 

These are the main loan types that you are going to need to learn more about. As always we recommend speaking to your YFG Lending specialist.