Personal loans are dubbed as general purpose loans which can be obtained from a financial institution or a bank. As the name suggests, the amount of loan which can be employed by the borrower is for “personal” intentions. These may include unexpected expenditures such as home improvements or repairs, hospital expenses, consolidating debts, among others.
Aside from the fact that a personal loan is a mere test for borrowers, being qualified will only happen upon meeting certain requirements. What are the integral factors important to gain approval for this type of loan?
Factors to Consider
Here are some of the points you have to look upon if you are gearing towards seeking approval from a lender:
- This type of loan is unsecured. This means that you will not be obliged to put up an asset or collateral in exchange for an approval. It is not necessary to receive the loan. With this reason, the loan becomes quite a hard catch because it is a big risk for the lender. But then, the lender is given the chance to make some actions like filing a lawsuit if you failed to pay.
- There is a fixed amount of loan. The personal loan is computed based on the income of the borrower. With this, the transaction history of the client is given a closer look. The credit rating is also too important to not check. There are chances when banks decide to have a pre-fixed amount instead. This may happen too.
- The interest rates are also determined. They are fixed for the entire duration of the loan.The amount of it must be disclosed to the borrowers so that they are guided properly. This is different with pre-fixed loans because they are from credit ratings. There are also loans out there in which the interest rates vary.
- The period for repayment is always fixed too. Personal loans are not long-term. You are most likely to be given 6 to 12 months to settle the money borrowed. This can happen if the money provided to you is only in small amount. As this is the case, it should not be surprising that the interest payouts are relatively high. These are the differences you have to know.
- Availing a personal loan may have a drastic effect on your credit scores. This occurs because lenders report details of loan account to credit bureaus. This is done to monitor the credit rating of a person. If there are defaults seen on monthly payments, the credit rating of the individual will surely be affected. Be aware of this consequence!
- Be careful of lenders who are willing to approve loans for individuals with a bad credit history. Yes, they may mean well. However, there are times when they scam people into paying upfront commissions only to end up with nothing in return. Do not just trust a company or anyone without doing your research! This is a way to ensure that you do not fall victim to tricks!