When we decide to look for a bank loan, the first thing we do is check what offers banks offer us. We are usually tempted by the promises of a low APRC which is very competitive compared to other institutions. But why, after providing data and providing documents, the loan price is slightly different than the initial one the bank promised? What is the reason that one customer gets an offer from the APRC of 9% per year and someone in a very similar situation with the APRC 15% per year?
Banking SCORING, what is it?
To talk about the cost of a bank loan, it is worth first raising the scoring password, i.e. the scoring that the bank calculates for the client. Such a score is a determinant of the loan price that the bank can offer to the client. It is influenced by many factors such as customer crediting, timely payment of installments, employment or possession. Therefore, we will try to describe the most important factors affecting the offers presented by banks. Banks do not provide information as the following factors affect the customer’s situation. That is why we describe them based on thousands of processed applications with our clients.
Credit price and customer crediting
How expensive the loan offer presented by the bank will depend on a factor called DTI (from English debt to income). The indicator determines the ratio of our installments to earnings. The greater part of our income is allocated to installments, the higher the DTI will be, which will increase the bank’s risk when granting a loan. The 10-20% ratio allows you to get the best offers, while the 45-50% approaching capacity limits will present a fairly expensive loan offer.
Timely repayment of loans and obtaining a cheap loan
The rule is simple, the more timely repayment of installments month by month, the better the bank will respond to our situation and will be able to present a cheaper offer of cash or consolidation loans. Single arrears in installments of 2-4 days, if they happen, are unlikely to cause a great tragedy. Arrears over 30 days, if they occur, even 2-3 years earlier may cause a much more expensive offer that the bank will be able to present to us. Such arrears can even cause a denial of credit. The most important thing when applying for a bank loan is the timely payment of all our obligations. Even one day backlog when applying for a loan will result in recoil. Then it is worth taking care of your installments, making payments, waiting 3 days for them to update in BIK and then you can apply for a loan again.
Loan repayment history and loan price
The issue similar to the one in the section above, related to arrears, applies to loans that we have already closed. Banks also have a preview of them. If we have a lot of arrears in history or terminated loans up to several years back, the bank can see this fact and be more careful in crediting the customer. It is worth ordering bad entries in our history before applying for a bank loan. A good way is to apply to banks where we previously had a loan to stop processing information. Such inference will come down to removing negative entries in our history.
On the other hand, if the bank finds loans that are closed in a timely manner, it will definitely react better and be able to offer us a cheaper loan offer. The fact that the loans are closed on time increases our credibility with banks.
Credit price and credit inquiries, how they affect
Unfortunately, credit inquiries underestimate our credit score, which means that the more inquiries the more banks present the higher loan offers. So, for one query, you can get an APRC at 6-7% per annum, for example, and having 4-5 credit inquiries in a short time, the bank will take them into account and will increase its APRC offer by up to 15% per annum. It is also worth remembering that many inquiries may even cause a denial of credit.
Employment and the price of a bank loan
The stabilization of employment has the greatest impact on the loan price. The more reliable the forms of employment, the longer the working hours, the better the bank offers. A model example is, of course, a permanent employment contract. This form of employment has the least risk of losing a job, changing it or dismissing an employee. The banks offer much worse offers in the case of contracts of mandate or for specific work. If the contracts are signed for a year and renewed, some banks are even able to refuse to credit the customer. In such situations, banks usually require us to confirm employment records from a longer period or a promise of employment.
Impact of the profession on the price of credit
The profession that a person performs is also not indifferent to the client’s scoring and the final price of the loan. One client profile is more liked by banks, like the budget zone (teachers, police officers, etc.), the other less like employees of small construction or transport companies. Specialists, i.e. lawyers, doctors and surveyors, can count on better offers.
The customer’s age and the price of the bank loan
Another factor affecting customer scoring is age. The bank has limited confidence in young people who apply for their first loan in their lives, or up to an 80-year-old pensioner with a lot of credit. Customers usually count on the cheapest offers from 28 to 50-55 years old. Of course, each bank has a different ideal group of borrowers. The ranges provided are an attempt to average the optimal age for borrowers. The age at which the bank incurs the least risk in granting the loan.
Having a relationship with a bank and the impact on the price of a loan
The fact that the bank will definitely trust the client it knows is widely known. If the customer has an account with receipts from the employer and from which he purchases, the bank feels safer and is able to offer a cheaper loan than the competition. It also has its worse side. It often happens that the bank, after looking at the history of the customer’s account, refuses to provide credit. Things that can be grounds for refusal are e.g. transactions related to online casinos, bookmakers, this is a signal to the bank that the customer may not be reliable in the subsequent repayment. As a rule, however, the more the bank knows us, the better the relationship and the cheaper loans it will offer.
The education of the customer applying for a loan and the impact on the price
Banks score better customers with higher education. They have a better chance of getting a cheaper loan. Basic education can cause a slight increase in the loan price. It should be remembered, however, that this is a small factor, calculated by analyzing a number of others, hence it will not weigh whether the bank will grant a loan.
The number of dependents and the price of the bank loan
It is not entirely clear whether the number of dependents has an impact on the price of the loan. It affects the customer’s creditworthiness more. Depending on the number of children the customer has, or if he / she has a dependent partner for the credit obligations, the bank adds the costs of maintaining the given number of people. It can have a rather indirect impact by calculating by the bank the monthly amount that the customer can spend on installments. If it is relatively low, getting closer to the creditworthiness limit may also inflate the commission or the interest rate on the loan.
Place of residence and the impact on the price of the loan
Another issue that basically has an indirect impact on the cost of credit. Banks determine the cost of maintaining an apartment, a house for cities of different sizes. Cities up to 10,000 inhabitants, 25,000 or 100,000 and larger. Certainly, a customer living in a small town will have a much lower amount spent on housing than a resident of the capital. This, in turn, has an impact on the amount that the customer can allocate to bank installments. From two identical clients, but with a different address of residence, it may turn out that the one from a smaller town will get a loan and this will run out of creditworthiness from a larger voivodship city.
Living – type of real estate and the price of credit
What is better scored by the bank? Owning an apartment or house? There is not much difference here, it will be more important for the bank whether the property is or is not available to the client. The most common declared residential status of customers are:
- The fund
- Confusion with a family
Or other options, such as business, rented or social housing. Certainly the bank best perceives a customer who owns an apartment or a house. The bank is calmer if the customer does not repay the loan its financial status indicates that the debt will settle the customer’s debt. In turn, living with a family reduces the cost of the client, he does not have to pay the rent or the entire bill. The rented flat looks the worst, indicating that the customer does not have and in addition a significant part of his income is allocated to monthly housing costs such as rents, bills.
Impact of marital status on the price of credit
It is difficult to state clearly how the customer’s statement affects the price of the loan. However, when he is a bachelor, his living costs will not be shared with anyone, which will result in a higher living allowance. Declaration of the status of a free relationship, cohabitation or marriage divides the costs into 2 people, which usually helps in terms of creditworthiness. It is worth remembering that banks above a certain amount level require the consent of the spouse.
Owned car and the impact on the price of the loan
Here, as with the apartment, the possession indication helps banks trust us more. They see that if the client will have problems paying off the client’s assets can be secured against the payment of the debt. On the other hand, owning a car increases the cost of customer maintenance so it all depends on the bank’s systems, how it approaches this issue.
Of course, our approach to factors is not the same in every Polish bank. In one bank, ownership flats are scored much better, while in another, living with a family. Unfortunately, banks do not inform us about the model client for their system. Complicated systems react to a number of factors themselves, determining the level of offer available to the customer.