4 Factors Affecting Online Loan Application Approval Beyond Credit Score

Published on August 28, 2020 by Daniel Azzoli

person smiling at a computer

When you’re considering applying for online loans – or loans of any kind for that matter – you’re going to want to put yourself in the best position possible to be approved. Whether you need a line of credit to help you deal with a sudden emergency expense, or you’re looking to apply for a mortgage, you’re likely applying for a loan because you really need it. But getting a loan approval can be tricky when you don’t have a good idea of what factors could affect your chances of being approved.

No one wants to deal with the disappointment of being denied for a loan in a time of need, so it’s important to get a better sense of the potential factors that could be the difference between approval and denial.

Credit scores often come to mind as the most important part of your financial profile when you’re applying for a loan, as it gives financial institutions more insight into your history as a borrower and how likely you are to pay your loan back. But that doesn’t mean that there aren’t other important factors in play.

There are a few different components outside of your credit score that may end up being important in the final decision, so we’re going to dive into these factors and take a look at how they may affect your online loan application.

1. Income

Ultimately, if a financial institution doesn’t think you’ll be able to pay them back, they won’t want to lend money to you. So, the amount of money you have coming in may play a substantial role in determining whether you’re able to make your payments, and subsequently whether your online loan application is approved or not.

For example, let’s say you’re looking to borrow a loan amount that would come with monthly payments totaling around $800. If your entire monthly income is only $1,200, then it stands to reason that you may have a hard time making these payments. This is something a financial institution will likely pick up on. Now, let’s say your monthly income is hovering around the $3,000, but in this case, your monthly loan payments are only $100. It’s likely that you’ll have an easier time making these payments with that level of income. With this in mind, it may be more likely to get online loan approval in this scenario.

2. How Much Debt You Have

It might seem that if your income is well above the cost of the loan you’re applying for, you should have an easy enough time paying it off, and an even easier time getting a loan approval, right? Well, it’s not that cut and dry.

In addition to your income, in some cases, the amount of debt you’re currently carrying can also have a big effect on whether or not you can pay back the loan you’re applying for. Simply put, if you’re already dealing with a mountain of debt, financial institutions may not be so keen to offer you a loan and pile on to the debt you already have. If you owe a ton of money already and you lose your job or have your wages reduced, it might be a struggle to meet all your debt repayments.

So how do some financial institutions judge whether you have too much debt or not? They look at a metric called debt-to-income ratio (DTI). This number does exactly what it sounds like; it compares the amount of debt you’re currently carrying to how much income you have coming in.

There’ll be some variance between financial institutions and what they’re comfortable with in terms of your DTI, but generally speaking, many lenders prefer that your debt payments are 36% or less of your total income.[1] If this number is higher than 36%, there’s a chance that you may have a harder time finding a loan, depending on the financial institution.

Now, if your DTI happens to exceed 36%, there still may be institutions that would be willing to lend to you depending on how well you meet their other requirements. This means that you may need to have a relatively high level of income combined with a good credit score. But even with these qualifications, there’s still a chance that loan approval would remain out of your reach if your DTI is too high.

3. Collateral

If you’re looking to get online loan approval, the collateral you provide can go a long way in helping you achieve that. It’s the defining distinction between secured and unsecured loans. Basically, collateral is an asset that you agree ahead of time to give to the financial institution you’re borrowing money from, in the case that you aren’t able to make your loan payments. If the loan you’re applying for requires you to put up collateral, then it’s considered to be a secured loan, while loans that don’t require collateral are unsecured. Typically, the interest rates of secured loans will be lower than those of unsecured loans because you’ve pledged a tangible and valuable asset as payment in case you can’t meet your loan payments.

House in front of a pink and blue sky

An important point to note is that the value of the asset you’re putting up may have an impact on how much money a financial institution is willing to lend to you. Let’s look at a mortgage as an example. If you take out a mortgage, the collateral you’re putting up is the actual house you’re buying. With this type of loan, you won’t be able to borrow an amount that exceeds the value of this house. This is because the bank will need to make sure that they get back all of the money they’ve lent you if you can’t keep up with the mortgage payments.

4. The Number of Loans You’ve Recently Applied For

Another thing that a financial institution will be keeping an eye out for is whether or not you’ve submitted a high volume of online loan applications in recent and quick succession. If you’ve been going crazy with loan applications, this might be a sign to lenders that you’re taking on too much debt too quickly, and that there’s a reasonable chance you’ll default on the loan you’re applying for.

But how can a financial institution know how many loans you’ve been applying for? Well, when you apply for credit of some sort, a hard inquiry (also known as a hard pull or hard credit check) will typically be placed on your credit report. More specifically, it’ll be placed on your prime credit report with one of the three major credit bureaus – Equifax, TransUnion, or Experian. A hard inquiry may be done when:

  • You submit a loan application, such as an online loan application
  • You submit a request to increase your credit limit for an existing account

So, why is this significant? While it’s important to keep track of how many hard inquiries are made into your credit report because of its effect on your credit score, it’s also important because a high frequency of recent loan applications may make a financial institution a little wary about lending you money.

However, there are instances where multiple hard inquiries won’t affect your credit score and may not be a red flag to lenders; specifically, when you’re rate shopping. Basically, if several inquiries for the same type of online loan crop up on your credit report within a relatively recent span of time, they may count as one single inquiry.[2] Additionally, financial institutions who see these recent inquiries may understand that you’re simply comparing the rates of different loans to get a better idea of what may be available, and won’t penalize you when it comes to loan approval.

Person signing an online loan document

Keep in mind that not every online loan application will come with a hard inquiry, as some financial institutions perform soft inquiries. These typically do not affect your credit score. If you’d like to learn more about hard and soft inquires, check out this article for more information.

Pay Attention to All Factors Affecting Your Online Loan Application

When you’re in need of a loan and considering potential options, it’s important to understand the different factors that go into loan approval decisions. This may help to put you in a better position to be approved. If you can regulate how many loans you apply for, keep track of your debt, and try to maintain a steady income, you may be able to improve your chances of approval.

You should also make sure to visit the site of every financial institution you’re considering submitting a request for a loan with and see if they list their requirements. If you were wondering what the requirements were for a Line of Credit offered through CreditFresh, we’ll save you the time of searching and list them right here. An applicant must:

  • be of legal age to contract in their state of residence
  • be a US citizen or a permanent resident
  • have an active bank account
  • have a regular, consistent source of income
  • have a valid contact number and an active email address

Just remember to do your research, be thorough, and educate yourself on all the important factors affecting online loan.

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.


[1] https://www.investopedia.com/terms/d/dti.asp

[2] https://www.fool.com/the-ascent/personal-loans/articles/what-is-rate-shopping-how-do-it-right/