Understanding the Impact of Credit Scores and Existing Loans on Loan Eligibility
For young professionals and budding entrepreneurs, managing finances can be an intricate puzzle, especially when considering multiple loan options like credit loans and rental deposit loans. While a steady income of around 35 million KRW and a good credit score seem ideal, existing loans such as overdrafts can complicate the picture. Financial institutions scrutinize debt-to-income (DTI) and debt service ratio (DSR) metrics to assess an individual’s repayment capacity.
The Role of Overdrafts in Loan Calculations
Overdraft accounts can significantly impact your perceived debt level. Regardless of the actual usage, the full limit of an overdraft is considered as debt. For instance, if you have two overdrafts with limits of 8 million and 10 million KRW, your total perceived debt is 18 million KRW. This perceived debt can limit the amount of additional credit you can access.
Credit Scores: A Double-Edged Sword
A high credit score, typically above 900, is a positive indicator for most financial institutions. It classifies you as a top-tier borrower under both NICE and KCB standards. This could mean better loan conditions even with some existing debt. However, a high credit score alone doesn’t guarantee loan approval; your DSR must remain within acceptable limits.
Strategizing the Sequence of Loan Applications
When balancing rental deposit loans and credit loans, the order of application is crucial. Rental deposit loans, especially those guaranteed by institutions, might not always count towards your DSR. Young individuals under 34 who are non-homeowners can often access up to 100% of their rental deposit at favorable rates. Yet, once a rental deposit loan is in place, subsequent credit loans might factor it into the DSR calculations.
Why Securing a Credit Loan First Might Be Beneficial
Though it seems logical to secure a rental deposit loan first due to its minimal DSR impact, financial institutions consider your total debt profile, including potential rental loans. If securing an additional 4 million KRW in credit is essential, applying for the credit loan before the rental deposit loan might improve your approval odds due to a lower DSR.
Leveraging Entrepreneurial Income for Loan Approval
Entrepreneurs can enhance their loan prospects by demonstrating sustained business income, particularly if the business has been operational for over a year. Financial institutions assess income based on comprehensive tax returns rather than gross sales, focusing on net income after expenses.
Exploring Alternative Loan Options for Entrepreneurs
If DSR limits restrict traditional credit loans, consider guaranteed loans through credit guarantee foundations or government-backed policy loans. Programs like the Small Business Promotion Corporation’s startup and operational loans offer favorable terms and lower interest rates. Some regional banks also provide specialized credit products for entrepreneurs, which could offer additional benefits.
Conclusion: A Strategic Approach to Loan Applications
In summary, young professionals with a high credit score and manageable existing debt have a reasonable chance of securing a 4 million KRW credit loan alongside a rental deposit loan. Success hinges on the strategic sequencing of applications and recognizing entrepreneurial income. Prior consultation with financial institutions can provide tailored advice, ensuring you make informed decisions.