The creditworthiness of the borrower is checked each time a loan is applied for and broken down into personal and economic creditworthiness. Income is an important factor. The monthly payments depend on this income. These must not put excessive strain on the budget. A bad credit rating does not necessarily lead to a rejection of the loan application. However, you should bring in additional collateral if you want to get a loan with a poor credit rating.
The credit assessment
The bank checks the applicant’s creditworthiness so that it can assess the risk of default. For this purpose, it gets an exact picture of the applicant’s creditworthiness. The personal creditworthiness depends on the willingness and the reliability of the applicant to repay the requested loan according to the specified modalities.
The Credit bureau information is one way of determining the creditworthiness. This tells the bank whether the customer has applied for credit in the past and how it was paid off. Serious violations are noted with a negative entry. Current loans are also entered from a certain amount.
If the installments to be paid already take up a large proportion of the income, borrowers with a higher income can also have a poor credit rating. This is an aspect of economic credit, since it is the ratio of income to expenditure.
Alternatives in case of rejection
For a loan with a poor credit rating, you therefore have to look for alternatives. If collateral is available, for example in the form of real estate or securities, this can be added. In the case of real estate, the land charge is entered in the land register. It enables a bank to assert its claims in the event of a loan default. Leaving securities to the bank is called a Lombard loan.
The surety is another alternative to these procedures. If you can provide a guarantor who can step in in an emergency and has the necessary income, this greatly increases the chances of getting a loan with a poor credit rating. This also applies to other borrowers with whom the application is made and who are jointly liable.