How to Check and Improve Your Eligibility for Personal Loans

Considering the financial and economic fragility of the world we live in, it’s hardly a wonder that people feel the need to, at least, know everything about personal loans. These loans can bail you out of tricky situations in life, and can help you arrange finances for your business and personal endeavors. To put things in perspective - here’s a fact check. By June 2017, unsecured consumer credit in UK had surpassed the £201bn mark, marking a 10% increase in the year. This proves how so many people seek refuge in personal loans to address the financial challenges life throws at them.

So, if you face a sudden cash crunch, personal loans can be the perfect solution. Here’s how lenders evaluate whether you qualify for personal loans without attracting unnecessarily high rates of interest.

Your Credit Score

Kind of obvious, right? Yes, but here’s what you might not know. Credit utilization ratio is an important measure that can contribute as much as 30% to your credit score. Here’s a trick to improve your credit utilization score. Pay off a good chunk of your credit card debt, and ask for a credit limit increase. This significantly reduces your credit utilization which on turn pushes your credit score up.

Check with your credit card service provider for a free credit score report. This report helps you understand how you can strengthen your credit score and hence become a low risk candidate for unsecured and low interest personal loans.

Current Income and Expenses

Your current income alone doesn’t determine your ability to repay personal loans. Lenders take your current monthly income and your monthly debt obligations to assess your loan application. The debt to income ratio is a fairly standard ratio used by lenders for this analysis. Your monthly debt obligations are divided by your monthly salary. The ratio thus derived, as per norms, can’t be higher than .43. So, before you apply for a personal loan, take measure to reduce your monthly debt obligations.

Checking Account

According to a study done by FDIC in 2013, about 8% American households don’t have a checking account. One reason could be that that bank turned down your request to open a checking account because of previous records of overdrafts with your accounts. Look for banks that offer second chance checking accounts (often with one time fees). Lenders of personal loans require the borrowers to have a checking account, so you’ve got to cover this.

Match Your Credit Score With A Compatible Lender

Here’s something you need to know. Every time a lender runs a credit report on you, your credit score reduces by 5 to 10 points. So, it’s imperative that you flow inquiries for personal loans only with lenders whose minimum qualifying criterion of credit score is met by you. Of course, two or three credit pulls won’t hurt your credit score much, but you don’t want to blatantly send out personal loan applications to too many lenders. You can either conduct Google searches to find out specific lenders’ credit score requirements, or can use an online financial service aggregator portal to conduct your research, without taking your credit score for a ride!

A Mix of Secured and Unsecured Loans

Secured loans are ones where you pledge an asset against the loan amount; for instance, in a car loan, it’s your car; in a house loan, it’s your house; in an installment loan, it could be your owned property, etc. Unsecured loans, just like a personal loan, don’t require you to pledge any assets. Personal loans are also unsecured. Before you apply for a personal loan, make sure you currently don’t have a heavy portfolio of unsecured debt financing, because that makes lenders wary of risks in getting their money back.

Job Stability

Apart from all these factors, the stability of your current employment is also a consideration. For businessmen, the lender might want to understand the operative and financial health of your business before sanctioning the personal loan. This factor, however, is not likely to have any significant bearing on the success or failure of your loan application.

A personal loan could bail you out of difficult financial times, and help you use cash in hand to leverage opportunities for international travel, higher education, and undergo advanced medical procedures. This guide helps you understand how lenders adjudge the adequacy of applications for personal loans.

The Christian Post