Did you know that not all loans are available to everyone? Of course banks reserve the right to refuse a borrower’s request that they deem inadequate or risky. In addition, for a large project such as access to real estate, vigilance is required. In order to do that, there are key elements that the banks take a close look at before making their decision. This includes the situation of the borrower, the borrower’s record and the level of risk that the borrower may present to the lender. Before granting out credit of any sort, the financial institution must assess your creditworthiness, ask you a few questions and ask for supporting documents and updates on any audits conducted by the bank.
Not all loans are available to everyone
The bank must ensure that the conditions for obtaining the loan are met by the borrower. Some loan categories, for example, are reserved for people with incomes not exceeding a certain amount.
The bank must assess your solvency
Your financial situation must be consistent with the amount borrowed. As soon as you borrow anything from the bank, there is an agreement to repay this credit, in several monthly instalments, over a fixed period at the time of subscription. The bank must therefore ensure that you are financially able to meet these repayments.
The credit institution must check your solvency and ability to repay, taking into account your debt ratio. It is customary for monthly payments not to exceed one third of the total household income.
The case law makes it clear that the bank has a duty to warn the uninformed borrower in writing about the risks associated with a credit transaction, taking into account its financial capacity and the resulting debt.
If the consumer credit is distributed in stores (restricted or revolving credit) or subscribed remotely (internet or telephone), the lender must prepare, in writing, a fact sheet (known as a “dialogue sheet”) that mentions the amount of income, liabilities and indebtedness for loans that have already taken out and are in the process of repaying. This form must be given to you and must be signed declaring the accuracy of the information provided.
Of Audits
Your contact person will also check if you are on file for payment incidents. The lender is required by law to consult the National Refund Incident File before granting a credit (consumer or real estate), an overdraft authorization or the annual renewal of a revolving credit. This consultation makes it possible to know the people who have an unresolved credit payment incident or who have a file of over-indebtedness in progress (within the legal deadlines).
Verification of the adequacy of the credit to the financing project
The financial institution must inform the borrower of the characteristics of the proposed credit. For consumer credits, the type of loan proposed must be specified: restricted credit, personal loan or revolving credit. The borrower must also submit a standardized pre-contractual sheet, which indicates in particular the total cost of the loan, the amount of the monthly payments and the interest rate of the loan.
Your income/employment status:
The amount of income that comes in each month as well as regular monthly expenses count a lot to assess solvency of the borrower. These factors determine the debt ratio and give an idea of what you can pay as a monthly loan payment. The general rule is simple: more than 33% of the borrower’s income cannot be exceeded. Banks do not pay people who are unable to pay their debt at maturity and also refuse those who cannot keep up with their long-term repayment obligations.
This is why at-risk professional status often encounters problems in obtaining a home loan. We are mainly talking about workers without a permanent contract, including temporary workers, liberal professionals and self-employed entrepreneurs.
Ability to pay is a basic criterion:
By lending money, your bank reminds the borrower of their commitment to repayment which must be kept in all circumstances. It therefore calculates all of the borrower’s income, including benefits and social security premiums. Then it deducts the essential monthly expenses, including outstanding debts, bills, rent and health. This results in the borrowers indebtedness rate on which you determine the amount you can apply for. However, it’s important to be careful, the lender is also interested in what’s left for the borrower to live; this refers to the amount of money that is left after paying the monthly payment. When applying for a loan, the bank wants to leave enough wiggle room for the borrower to maintain their standard of living. Please note that the bank may refuse the borrower’s application if it considers the remaining income as insufficient. So remember to scan your outstanding credits before borrowing again.
What are the risk profiles and why?
The borrower’s profile is an important element that may or may not reassure the lender. In other words, the borrower needs to present a reassuring profile for their bank in the long term to obtain a loan. For this, things become more complex in the event of overdrafts or bad banking history. Also know that the age of the borrower also counts when it comes to a large loan. For this, it is not difficult to borrow after retirement or even to find a suitable and cheap insurance.
What guarantee do the banks ask for?
The security the borrower provides to the lender is very important when making a decision. Providing strong guarantees to the bank encourages them to accept an application even without a contribution, a permanent contract or a living wage. In the context of a real estate loan, the property in sight constitutes in itself a kind of guarantee, because in the event of a default the bank can seize it and sell it in order to repay itself.