The loan application process is often tedious. At the end of it, it may seem as if you have just walked from under the microscope, especially on the part of your finances. When applying for funding, your lender is likely to ask for a host of things including; proof of income, appraisal, your credit history, etc. By requesting for proof of income, they are asking for pay slips, tax statements, gift cards or bank statements. Hence the question; do lenders check your bank statements? What if you borrow money online? To answer this question, we shall look at the reasons why you have to provide your reports, the kind of reports needed and what they do with the information they get from your statements.
Need for bank statements
Bank statements are periodical documents-produced monthly or quarterly that indicate one’s bank account activities in terms of deposits and withdrawals.
Lenders will require you to come with recent bank statements-at most 30 days from the date of application. The statements should come from any of your bank accounts which has cash in it. It can be a current or savings account. However, some lenders may ask for statements from any of the accounts which carry your monetary assets.
The reason for this is to check if you have the financial backing to be able to repay the financing you may receive in case the loan application got approved. From those statements, the lender will undoubtedly assess if you can pay your deposit and the monthly remittances.
Your lender will do a thorough tour in your account information see just how much cash is available to you in the account, were you to need it. Depending on their requirements, your lender may tell you the least amount they need to be in your account to guarantee a loan. And, this ranges from one lender to another.
Do you require more than one statement?
The lender will need at least two months of most recent bank statements. Therefore, if your bank does not send monthly statements, then you might need to provide the statements from the last quarter of the financial year. The purpose of this is to ensure that the money you have in your account is yours and you have not borrowed temporarily to qualify for financing and release it back to the owner. They also want to ensure that you did not use the money in the account to take out a loan from some other lender. If that were the case, then it would be seen in the account when the monthly deductions start to be deducted.
Thirdly, the statements would be able to show your cash flow. If large deposits were to be made on your account without any knowledge of the bank on its source, then you will have to prove its legality beyond doubt.
The law has harsh penalties for fraudulent business transactions when the perpetrators get to be known. To prevent such risk, you will have to prove that the source of the cash is explained within the definitions of the law. Your lender does not also want to ruin the business by engaging in one risky transaction.
Nevertheless, the lender trying to assess your loan eligibility by using your financial statements is trying to reduce the risk factor that is always accompanied by credit dealings.
Also, in an event where you want to appear to the lender like you are better qualified, you will raise the lender’s curiosity and invite a lot of scrutiny in your finances. Anything that is not adding up may disqualify your application. So, don’t give yourself away so effortlessly by appearing to know the requirements and what it takes to guarantee you a loan.
Do the bank statements require verification?
Submission of your statements does not indicate the end of the application process. Your statements will have to undergo verification to ascertain you are the holder and the information provided marries with the account details with your commercial depositor.
Different lenders have their ways to prove validity. Some use the online platform; that is, you will be required to submit your statements online. After that, the lender with follow up with your bank either electronically or manually based on which way is more straightforward. On the contrary, some lenders will require these statements in hard copies, so they will follow up this traditional paperwork way to ascertain your bank information.
What does it take for the loan to be approved?
Generally, lenders widely use a process known as underwriting. Underwriting involves conducting intensive research on your bank account, and it seeks to find red flags such as;
- Unstable income. Underwriters check to ascertain a stable flow of income from regular sources. Any changes will raise questions which you should be ready with a conclusive explanation.
- Inadequate savings. Lenders will want to know if your account contains enough funds to pay for the down payment for the loan.
- Large unexplained cash influx. Deposits from unknown sources to your account, which is not regular raises a lot of red flags. The theory would be that you borrowed from another lender so you can pay for the down payment of the loan you are applying This assumption will trigger a risky borrower alarm.
- Bank overdrafts. Underwriters will be keen to check any overdraft charges on your bank statement. These fees are applied when you withdraw more money than you have on your account. Regular overdrafts are a terrible indicator as they show that you overestimate the amount you have saved or you are not a reasonable spender, and therefore you are prone to borrowing.
The Bottom Line
A bank statement is a crucial document for the processing of your loan. The lender requires a lot of information to be in a position to verify your financial stability. The statement is primarily used as a tool to repress away the risk factor that you carry with you while applying for financing.
Also, the lenders use these statements to avoid cases of fraud or money laundering which is against the law.
Therefore, after going through all this process and get cleared by the underwriters, then your loan may then be approved. It is advisable not to take out a loan at least six months before you apply for major financing since you will be required to explain. To find out more about payday loans and requirements click here.