For those who are unfamiliar with the process, a cheap rate loan is reserved for those who adhere to higher credit standards. In other words, if your credit is exceptional, you will pay a lower interest rate than someone who has even a fair credit rating. In addition to credit scores, other factors affect the interest rate that a person has to pay on a loan.

Lender criteria

Each lender has certain criteria that a borrower must meet to qualify for any kind of loan, but the criteria is more stringent for a cheap rate loan. Since interest rates are tied directly to a borrower’s credit history, it’s important to understand how credit and other factors can affect the interest rate on a loan. Some of the factors that a lender may use to determine credit worthiness include:

• Credit history

• Number of negative entries on credit report

• Date of newest negative entry

• Amount of high credit

• Debt to income ratio

• Causes of negative entries

• Employment history

• Longevity of current employment

• Amount of assets

• Overall financial stability

A lender will take each of the factors and apply a ratio in order to determine a potential borrower’s overall credit worthiness. Once these factors are put into the picture, a lender can make an individual determination.

Weighing the odds

After all of the information is gathered and confirmed, the lender must decide what he wants to do with the borrower’s application. He has several choices he can make at this point.

• Approve the application

• Decline the application

• Approve the application with contingencies such as approval for a lower dollar amount

• Make a counter offer with a higher interest rate and/or lower repayment term

For most lenders, the choice is either the first or the last item. After all, they are in business to make money, and making money means approving loans. It’s much easier to offer a higher interest rate to a borrower with questionable credit than to decline the application, only to have the borrower go to a competitor and receive a loan. Lenders tend to make a great deal of concessions to prevent losing a potential customer to a competitor, even if that customer has less than perfect credit.

Final determination

A lender will not customarily base his decision on the credit report alone, although some lenders to have a policy of not offering a cheap rate loan to borrowers other than the very best customers. Unfortunately, a few lenders are still in the habit of not loaning money to anyone who has negative remarks on his or her credit report, but with the economy being such that it is, this practice is becoming less common. In the past, it was much less difficult to find customers who have perfect or good credit, but in today’s world, that is becoming less commonplace, so lenders have to be more lenient if they want to stay in business.