Applying for a loan can at times be a complicated process, and understanding what lenders look for if they have requested your bank statements is crucial for a successful outcome. Lenders don’t just see numbers; they see a story of your financial habits and stability. This article will break down what they’re looking for, helping you prepare and increase your chances of approval.
INCOME: The Foundation of Your Application
Your income is the cornerstone of your loan application. Lenders need assurance that you can consistently repay the loan and that their affordability calculations are consistent with your financial activity.
- Regular Deposits Matching Declared Income:
- Lenders verify that your bank statement deposits align with the income you’ve stated on your application. They look for consistency in both frequency and amount. For example, a monthly salary should appear as regular, consistent deposits.
- Stability of Income:
- This is particularly important for those with variable income. Casual workers, self-employed individuals, and those with fluctuating commissions need to demonstrate a consistent pattern of earnings over time. Missing credits or significant fluctuations can raise concerns about whether an income can be factored as permanent and ongoing.
- Additional Income Streams:
- Don’t forget to include any additional income, such as government benefits, rental income, or income from a second job. Lenders will want to see evidence of these consistent deposits.
EXPENSES: Understanding Your Financial Obligations
Lenders delve into your expenses to assess your ability to manage your debt and to corroborate the information factored into their calculations.
- Debt Repayments Matching Application Figures:
- Your bank statements should reflect the debt repayments listed on your application. Lenders will check to see if there are any additional repayments to factor.
- Stability of Debt Repayments:
- Lenders look for consistent and timely debt repayments. Any missed or late payments can negatively impact your application.
- Additional Regular Debits:
- Be aware that lenders will identify any regular debits that you may have omitted from your application. This could include subscriptions, memberships, or other recurring expenses.
ACCOUNT CONDUCT: A Window into Your Financial Discipline
How you manage your bank account reveals a lot about your financial responsibility.
- Number of Dishonoured Direct Debits:
- Dishonoured direct debits indicate potential financial difficulties. Lenders will note the frequency of these occurrences and look for causes.
- Frequency and Duration of Overdrafts:
- Frequent or prolonged overdrafts are a major red flag. They suggest poor cash flow management and potential cash shortage.
- Account Balance Trends:
- Lenders analyse your overall account balance trends. A consistently declining balance can be concerning, they will likely note how quickly the balance declines after wage/salary credits.
- High-Risk Transactions:
- Lenders are increasingly vigilant about high-risk transactions. This includes:
- Gambling activity (including ATM withdrawals at or near gaming venues).
- Credit repair or debt collection activity.
- Excessive Buy Now, Pay Later (BNPL) activity.
- Lenders are increasingly vigilant about high-risk transactions. This includes:
LARGE OR UNUSUAL TRANSACTIONS: Explaining the Unexpected
Unusual transactions can raise red flags, and lenders will seek explanations.
- Large and/or Excessive ATM Withdrawals:
- Large, unexplained cash withdrawals can be flagged. Lenders may question the purpose of these withdrawals.
- Regular Transfers to Other Accounts:
- Regular transfers to accounts not already provided, or to external parties, can trigger further investigation.
- Frequent International Transactions:
- Frequent international transactions, these can potentially be considered as permanent/ongoing depending on their frequency/amounts.
- Frequent Online Transactions to Offshore Entities:
- These will be looked at closely to determine if they are high risk transactions as they can commonly be related to online gambling activity and can also raise compliance issues for the lender.
SHORT-TERM LENDING: A Sign of Financial Strain
Frequent use of short-term lending products can be potential signs of financial stress.
- Frequent Use of Short-Term Cash Loans or Wage Advances:
- Payday loans and other short-term loans are seen as a sign of financial hardship or cash shortage, particularly if being drawn down when the balance is low and there is evidence the funds are being used for general living expenses. The existence of this activity and/or the frequency can impact the outcome of your application or impact the rate offered at times also.
How a Finance Broker Can Help
Navigating the intricacies of bank statement analysis can be daunting without the right training or experience. This is where a finance broker can provide invaluable assistance.
- Pre-Assessment:
- A broker can conduct a thorough pre-assessment of your bank statements, identifying potential red flags before submitting your application to a lender.
- Guidance and Advice:
- If any issues are identified, a broker can provide guidance on how to address them. They can advise you on areas for improvement and help you present your financial situation in the best possible light.
- Lender Matching:
- Brokers work with a range of lenders and will know the specific requirements of each one. This allows them to match you with a lender that is most likely to approve your application.
By understanding what lenders look for and seeking professional guidance, you can significantly improve your chances of securing the loan you need whether it be today or working towards improving your chances in future.