Lenders evaluate several critical factors when reviewing your application. Your credit score serves as the primary indicator of how reliably you repay debt. Scores above 720 typically qualify for the best rates, while scores below 640 may face higher rates or denial. However, credit score alone doesn't determine approval.

Your debt-to-income ratio compares monthly debt payments to gross monthly income. Most lenders prefer ratios below 36%, though some accept up to 43%. This ratio demonstrates your ability to manage additional monthly payments alongside existing obligations. Employment history matters significantly as well—lenders typically prefer two or more years in your current position or field, indicating stable income.

What lenders evaluate:

• Credit score and payment history across all accounts
• Current debt obligations including rent or mortgage
• Income stability and employment verification
• Existing savings or assets demonstrating financial responsibility
• Recent credit inquiries and new account openings

Length of credit history and types of credit used also influence approval decisions, showing lenders your experience managing various financial products responsibly.

When comparing loan offers, focus on APR rather than interest rate alone. The Annual Percentage Rate includes both the interest rate and fees, giving you the true cost of borrowing. A loan advertising a low interest rate might have high origination fees that increase the total cost significantly.

Origination fees typically range from 1% to 8% of the loan amount and are often deducted from your loan proceeds. A $10,000 loan with a 5% origination fee means you receive $9,500 but repay the full $10,000 plus interest. Some lenders charge prepayment penalties if you pay off the loan early, negating savings from reduced interest.

Critical comparison factors:

• APR includes all costs, not just interest rate
• Origination fees reduce the actual money you receive
• Prepayment penalties limit your ability to save on interest
• Late payment fees can range from $25 to $50
• Monthly payment amount and total interest paid over loan life

Always read loan agreements carefully before signing and understand all potential fees that could impact your total borrowing cost.

Responsible borrowing starts with borrowing only what you genuinely need and can comfortably repay. Calculate your monthly payment using online calculators before applying, ensuring it fits your budget with room for unexpected expenses. Consider whether you could handle payments if your income temporarily decreased.

Common legitimate uses include debt consolidation at lower rates, home improvements that add property value, major medical expenses, or significant life events like weddings. Avoid borrowing for depreciating purchases like vacations or luxury items you can't afford otherwise. If you need a loan for routine expenses, it may indicate a budget problem requiring different solutions.

Warning signs of predatory lending:

• Guaranteed approval regardless of credit history or income
• Pressure to borrow more than you requested
• Unwillingness to provide written terms before signing
• Rates exceeding 36% APR or unclear fee structures
• Requirements to purchase unnecessary insurance or products

Research lenders thoroughly, checking Better Business Bureau ratings and online reviews. Legitimate lenders clearly explain terms, provide documentation, and never pressure rushed decisions. Take time to compare multiple offers and understand exactly what you're agreeing to before accepting any loan.