It seems almost proverbial to complain about a perceived irony of our society: those who are least needy of loan money are the ones who are the most qualified to be approved for borrowed funds. And yet, if we consider this matter a little more closely, we will see that there’s really no irony in this at all.
Whenever a lender — even if that lender is your best friend or your dad — gives you borrowed money, that lender expects to be repaid within a certain time period. Professional lenders always charge an interest rate, too, depending on factors like how much was borrowed, what the collateral is, what the repayment term of the loan is, and what the borrower’s credit rating is. (Sometimes even best friend or dad charges an interest rate, too!)
Interest rates are charged to make up for the fact that a lender is delaying his own consuming, or he is diminishing his own capacity for savings and investments and earning returns from those or having more money for his own consuming in the future. While it seems ironically unfair that the worse your credit rating is, the bigger your interest rate is, this is actually a fair and balanced system because the lender assesses that, if you have a poorer credit score, you are a greater risk not to pay back the lent money. In the financial world, bigger risks bring bigger rewards (if the desired objective comes to pass).
So the price you pay as a borrower for a less-than-optimal credit history is higher interest rates. If you don’t want to pay those rates, you don’t get the loan. And needless to say, if your credit history is considered deplorable you won’t even qualify for a lot of loans to start with.
Having more collateral than necessary also gets you a better interest rate and a greater chance of qualifying for a loan because the lender sees that you are pledging more of your own property to be handed over to him in the event that you fail to repay his money and interest to him.
How You Can Be More “Loanable”
The time is always now to begin making yourself more apt to qualify for more loans and at lower interest rates should you ever have the need for any. Even if you’re not “loanable” right now you can take actions that will improve your status as a credit risk in the future.
Always turn to borrowing money as a last resort. Pay for everything with your own money whenever it is the least bit possible for you. (By the way, scanning around for loans, even if you don’t actually borrow any money, temporarily lowers your credit score.)
Spend your money prudently and, if you ever invest your money, only take carefully calculated risks. With prudence and calculated risk taking you build up your collateral. You also lower the probability that you will need to borrow money.
When you do borrow, borrow as little as possible and pay it all back in the shortest possible time.
Do not finance your lifestyle with loans. Finance it by finding ways to increase your own earning power. Don’t upgrade your lifestyle without first upgrading your income.
You don’t need more than one credit card.
Loans are for emergency situations or presently unaffordable necessities. (Growing your own business may be regarded as a “necessity”.)They are not for luxuries. Discretionary income is for luxuries.
Absolutely never borrow money to invest with.
Remember, the less “needy” of a loan you are, the bigger amounts with better repayment terms you qualify for.
Brandon Mills is a professional blogger that reviews title loan companies. He writes for TitleMax, where anyone can get a title loan online as well as a title pawn.