What questions will a lender ask me when applying for a loan?

When applying for an online loan these days, most companies will ensure that there is a phone call with the applicant before proceeding and funding their loan. This is a common security measure to ensure that the loan is actually for that customer and allows them to ask any follow up questions and make sure that the loan is right for them.

A lot of questions are already asked during the online application such as:

• Name
• DOB
• Address
• Employment status
• Income
• Expenses
• Bank details

But follow up questions are essentials to confirm that all the information stacks up. Plus, it gives customers the opportunity to ask questions back to the lender and clarify any information. Here are some of the questions you can expect to come across over the phone.

Data protection

As part of FCA and ICO regulation, it is essential that the lender asks the individual to verify their identity. This is commonly:

• Can you please confirm your date or birth?
• Can you please confirm the first line of your address?
• Can you please confirm your mobile number?

The lender should be able to cross reference information used in the application form. This is a quick check only lasting a few seconds, but the rest of the call cannot proceed with it.

Employment and income

Customers need to be in employment and earning a certain amount per month to be eligible for a guarantor loan – this is because this is how they are expected to repay their loan.

Whilst the applicant will fill in this information on the online form, it is important for loan providers to cross-reference and double check this. It is common to ask for a customer pay-slip to back up their income and employment.

A recent pay-slip from the last month shows that they are likely to still be employed (unless they have left their job, further proof may be required) and it confirms their monthly take home.

This information is key to determine how much the individual can borrow – this is because the lender may have to adjust the amount requested so that they can afford monthly repayments without falling into arrears.

In some circumstances, you may find that the person is not employed at all or their income is a fraction of what they have stated. This helps the lender when making their final decision, which could result in not proceeding with the application.

Similarly, if their bank details have been flagged, the lender may request a copy of a bank statement to confirm any bank details and income too (since you can see where funds have been paid into). In some cases, the lender may spot other information on the bank statement that affects the chances of approval. Seeing things like debt management, government benefits and gambling are sometimes signals that suggest the lender does not want to be involved.

Purpose and terms of the loan

Lenders will commonly ask what is the purpose of the loan. Guarantor loans are commonly used for lifestyle purposes including buying new cars, paying for weddings, catching up with bills and debt consolidation. Other short term products such as payday loans are used for more emergency purposes such as car repairs, urgent home repairs and medical bills.

It is necessary to understand the purpose of the loan because high cost interest is not used for frivolous spending such as shopping or luxury holidays – it should go towards a real purpose.

The terms of the loan are also very important, just to confirm things like:

• loan amount
• loan duration
• interest rates and fees charged

Whilst the customer has access to a formal loan agreement, it is always good to revise this information and check this over the phone.

Guarantor information

A key point when it comes to guarantor loans is that you have the extra person involved in the loan, the guarantor. The lender will always make a point of speaking to the guarantor as well. This individual (usually a close friend or family member) needs to understand their responsibilities. This is essentially stepping in to pay for the loan if the main borrower defaults or goes missing.

The guarantor will not be approached straight away to repay if just one payment does not go through. The lender will always contact the main beneficiary on several occasions and offer flexibility such as payment plans or smaller payments, before asking the guarantor to pay the bill.

Furthermore, should the loan be successfully funded within 24-48 hours of applying, the funds are distributed to the guarantor’s account first. This is because the lender wants peace of mind knowing that the huge sum of funds, potentially in the thousands, is going to a person with a good credit score (and possibly homeowner status).

So this is something that the guarantor needs to be aware of, because they can decide to pass on the money in one lump sum or in instalments to the borrower, if it helps them manage their cash flow. The guarantor is also offered a ‘cooling down’ period of 14 days in case they want to send the money back to the lender, thereby cancelling the account, with no interest charged as a result.