Approving a Debt Consolidation Loan

When approving a debt consolidation loan, what do banks think about?

Approving loans really hasn’t changed much in 100 years.  In the banking industry it’s referred to as the 4 C’s of Credit; Character, Capacity, Collateral, Conditions.  The 4 C’s matter.

Character

This refers generally to your credit history but it also takes into account your education, where you live and how long you’ve been there, and your marital status.

Example, young single man, moves every 3 months vs Man in 5 year De Facto Relationship lived in same house for 5 years.  Who would you give a debt consolidation loan to? That’s right, Mr Stable.

Capacity

Refers to your income AND your expenses.  If your expenses are high, then you have less money available for paying the debt.  Lenders will also look at if you have appropriate insurances available in case you get sick or die (sorry but it’s the truth).

Collateral

How much money and stuff do you have.  You’ve been working for many years now; lenders want to know what you did with all the money.  Did you spend it on bonds and shares, or did you spend it on beer and skittles? The more you have to show for your income the more likely you are to be approved for a debt consolidation loan.

Conditions

It’s not ALL about you, when banks are approving debt consolidation loans.  Some of it has to do with economic conditions, e.g. recessions! Other things might be the economic conditions in your industry; say, you’re a roof insulation installer and the government just cancelled a rebate for installation. How likely are you to get a debt consolidation loan?