Final answer:
Lenders rely on credit ratings, borrower's income sources, savings, and investment profiles to decide whether to extend a loan. A borrower's history of repaying loans, potential cosigners, and available collateral further influence this decision, which is also affected by prevailing interest rates in the economy.
Step-by-step explanation:
Lenders use various factors to determine whether to give you more money or extend a loan. These considerations form part of a process aimed at evaluating the risk and potential return on lending capital. One of the primary methods used is assessing your credit rating, which is a reflection of your borrowing history and your reliability in repaying loans, including credit card debts. Credit rating agencies like Standard and Poor's and Moody's provide these assessments that banks rely on.
Besides the credit score, lenders also take into account your savings, investments and income sources. High profits, particularly in the case of a firm, can inspire confidence and increase your chances of loan approval. Conversely, a history of late payments can harm your prospects. Additionally, lenders may require a cosigner—someone who legally agrees to repay the loan if you default—or may ask for collateral, such as property or equipment, which can be seized and sold off should you fail to repay the loan.
Factors like interest rates in the economy also play a role; loans are generally more valuable when interest rates fall and less attractive when they rise. All of these elements contribute to a lender’s decision on whether to issue a loan and at what terms.