Thinking of applying for a loan? Learn about the most common requirements before starting the process

Applying for a loan is a decision that has a long-term impact on a person’s finances. Whether you need to apply for credit to purchase a car, or an apartment, it is a process that can certainly feel exhausting.

Before approaching a financial institution, it is essential to be clear about the requirements you will have to meet in order to be successful in this process. Here we describe the most important aspects to consider when applying for a loan.

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Requirements to apply for a loan

Before applying for a loan, you should be aware that banks have several requirements to approve a loan. So, take note, and be prepared. These are some of the most common requirements:

1. Be of legal age

In Colombia and in most countries, you must be at least 18 years old to apply for a loan. Some entities may have additional restrictions for people who are very young or over a certain age. However, this will depend on each entity and may vary depending on the type of loan.

2. Credit history

When applying for a loan, you should ask yourself about your credit history, since the entities will surely check if you have fulfilled your financial obligations. Having a negative credit history – that is, having defaulted on payments – can hinder the process.

Nowadays, however, there are several institutions that offer quick loans even for those who are reported in the credit bureaus. However, these types of loans are usually small and come with high interest rates.

3. Stable and verifiable income

Another of the requirements that financial institutions demand in order to grant a loan has to do with the applicant’s payment capacity. To review this aspect, as an applicant, you may have to present documents that prove your stable income, such as labor certificates, bank statements or even your income tax return. Before applying for a loan, keep in mind that you will need to have these documents at hand.

4. Capacity of indebtedness

In order to approve a loan, the entities calculate the applicant’s debt capacity. As mentioned above, ideally, debts should not exceed 40% of the monthly net income. Exceeding this limit reduces the likelihood of approval.

5. Guarantees or collateral

Depending on the type of loan you are applying for, some institutions may require a guarantee or collateral. For example, in mortgage loans, the property to be purchased acts as collateral. In other cases, a guarantor may be required, who agrees to respond in case the applicant is unable to pay.

This will depend on the type of loan you are applying for and the entity itself, so you will have to check this aspect directly with the financial entity.

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Final tips before applying for a loan

Applying for a loan is a fundamental decision that comes sooner or later for the vast majority of people. If you are thinking of applying for a loan, consider the following aspects:

• Make an accurate calculation of the amount you really need.
• Make sure that you will be able to pay back the money within the agreed terms (or even before).
• Evaluate whether borrowing is the best option or whether it is preferable to save for the expense in question.
• Review the terms of the loan in detail. It is key to focus especially on interest rates, commissions and possible penalties you could face in case of late payments.

The truth is that applying for a loan is a decision that requires meditation and information. It is essential to understand the requirements and conditions of the loan and to foresee situations that could compromise your financial solvency. Before making such a decision, it is advisable to consult an expert.

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