All about creditworthiness
When exploring borrowing opportunities, you constantly encounter the concept of “credit worthiness”. If you want a bank loan, your credit rating is likely to be assessed before a loan can even be considered.
For many, the credit check means they get a refusal to borrow. It can be a frustrating experience, but it’s not too fun for banks to choose to reject someone. A credit rating is extremely relevant in terms of valuation and the bank can get its money back. In the end, the bank is a business and that also means they want to make money.
There are other options for borrowing if you get a refusal in the bank, but first it is relevant to know why you were rejected.
Your ability to pay back
When assessing your credit worthiness, the bank is first and foremost looking at your current financial situation. This is done so that they can assess whether you can pay both your current expenses as well as the expenses you receive when you take out a loan. After all, the loan has to be repaid, which means that for a period of time you will receive increased expenses in connection with the loan being repaid. If the bank considers that you have a stable economy with air in the budget, then it increases your chances of getting a loan. Your finances may also affect your interest rates, which the bank is willing to offer you – the better the finances, the lower the interest rate.
In the bank’s assessment, it will look at all revenue. This means that both jobs and public support such as unemployment benefit or cash assistance are included. In addition, if you have children, child benefit is also included. This income is set against your housing, food and miscellaneous expenses. Preferably, the bank sees that you have an available amount that fits your status. That is, for example, a single person needs a lower amount of money than a family.
Your available amount is calculated based on your income, with all the fixed expenses deducted. The amount left over for food, clothing, pleasures and the like is your available amount.
To assess your availability, you typically need to make certain information available to the bank. This typically means that you have to give them your annual statement, paychecks and much like a well-prepared budget.
Your willingness to pay back
Your credit rating is not the only thing that is considered when you need to approve a loan, which is behind many Danes. Your credit rating is a way of measuring your ability to repay a loan, but the bank is also looking at your willingness to pay back.
To assess your willingness to pay back a loan, the bank looks at any previous loans. In addition, they also check if you are in order in your finances – for example, that you do not often overdraw your account. In other words, it is not only important if you have enough money in the economy. You also need to understand how to prioritize right.
Finally, the bank also checks whether you are in RKI or another debtor register. If you are in RKI you cannot get a loan and will automatically be rejected. This does not matter how good the rest of your finances are.
The bank is not interested in lending money to people who do not repay the debt. Therefore, they check both your ability and your willingness to repay the debt. However, if you are to have a large loan for consumption, the bank may well require that additional collateral be provided for the loan to be repaid.
For example, you can give the bank a security if you have a home, car or other values that create value. For the bank, these things are a security as they can be sold if you prove reluctant or unable to pay off your debt. This guarantees to the bank that they will get their money back if they lend to you.
For example, if you want to borrow for a car, then some collateral is also provided for the bank’s money, as the car can also be sold if you do not repay. Therefore, you may well find that you are allowed to borrow more for car than for regular consumption.
Non-performing loans drop creditworthiness
Every year, many Danes are refused loans because their credit rating is not acceptable. There are many different reasons, but often due to age, unstable job situation or the like. This is mainly because the bank prefers to say no if there is a doubt about a loan.
The loan market also offers a wealth of different payday loans. Here, the credit rating has been dropped in favor of expediting. In practice, this means that you can have your loan the day after you apply. This makes payday loans the absolute fastest type of loan, and at the same time significantly reduces the cost of handling.
If you are considering a mortgage, you should be aware that interest rates are significantly higher than in the bank. This is because the lender does not have the same guarantee that you can repay the loan as a bank, for example. Nevertheless, quick loans are gaining popularity among the Danes.
Non-performing loans are not as dangerous as they sound, but you need to be aware of interest rates. Make sure to calculate how much you have to pay for the loan and be sure you can pay it back. As mentioned earlier, a credit rating is not made when you apply for a quick loan, so it is important that you do a credit rating yourself. In other words, you need to be sure that your finances can bear the repayment of the repayment loan that you have taken out. If you are struggling to make everyday life financially connected, then a quick loan is hardly a good idea for you or your family.