The Lending Criteria
No creditor will accept to sponsor a refinance project unless they are sure that the borrower meets their lending criteria and will not abscond without paying up their debts. This then leads to a credit assessment which is akin to the means test that they use in welfare benefit assessments.
The applicant is put through a profile simulator and a figure of maximum credit is obtained which reflects the propensity of that person to pay. If a combination of the following factors is present in the application to refinance, the likelihood of succeeded are significantly reduced.
The Warning Signs
- An adverse borrowing history particularly if it is involving a sister organization will discourage the lender. The logical presumption is that if you do not have a good credit history then that is indicative of a personality pattern which means that in the future you will face the same problems as you are trying to clear you refinancing initiative. The bank is then well advised to stay away from you or at the very most offer you some very stringent terms for borrowing.
- The lack of adequate collateral would be unacceptable risk for the lender in as much as they have nothing to fall back on should you default on your loan repayment obligations. Good financial management requires that they do not accept a refinancing initiative until they are sure that you are more than capable of covering the full loan if circumstances demand it. Collateral is the final reserve to meet this criteria and if it is missing, then the decision is likely to be negative.
- The presence of other multiple loan arrangements could indicate a lack of financial management or an inability to cope with existing credit obligations. The bank will then be skeptical about increasing the financial stress on the applicant given their ongoing problems with debt. The less over committed you are, the more conducive it is to lend you resources.
- If there are personal problems associated with the applicant such as a history of fraud, it makes it difficult to assess whether they are truly committed to paying the loan that they are requesting or this is just another money losing project that is waiting to happen. The bank will naturally take a cautious approach because it does not want to expose its shareholders to unsustainable risk formula.
- Where the applicant has been rejected before for a similar refinancing project, the lender will be keen to ensure that the circumstances that led to the rejection have been fully mitigated. In fact some lenders require that you spend at least six months after the first rejection before you reapply.
This is not a conclusive list of all the factors that would negatively affect the application for a refinancing project. However they will give you an insight into what could let you down. If you read them in combination with the positive factors, then you are likely to succeed in your application.