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On receiving a loan application from you, a lender basically tries to check the likelihood that you can and will repay the money. He does so by examining, rather in a textbook fashion, the "Three Cs" - character, capacity and credit.
Here's what they mean.
Character:
A lender gets to know of your financial and personal character
through such details as how long you have lived in one place and how long you've
been working at your current and previous jobs.
Capacity:
This basically refers to your ability to repay the loan given
your income and savings. To estimate your capacity, a lender looks at your existing
living expenses, debts on loans you've taken earlier and the additional strain
the new loan would impose on you. All this information comes from your loan
application itself. Don't try and hide details of your existing loans from the
potential lender of the new loan - everything can easily be discovered through
your bank statement. Avoid any cloak-and-dagger stuff, it will only work against
you!
Credit:
Basically, this is test of your willingness to repay loans
on due dates. The lender will look at your track record of current and past
credit relationships. Do you pay your credit card dues on time, or do you habitually
exceed limits? What are your current credit limits, and how close are you to
those limits? All the answers would be factored in to arrive at a creditworthiness
statement.
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