Unsecured Personal Loan Requirements
Learning about the lending criteria for an unsecured personal loan can help an applicant to be better prepared when they apply. Getting approved for this kind of loan works differently compared to applying for a secured loan, and the approval criteria is often much stricter, making this type of loan harder to qualify for. This is especially true for people with poor credit.
Here is an extensive list of basic criteria for unsecured personal loan approval.
Credit Score and Debt Load
The credit score is the most important factor when it comes to getting approved for an unsecured loan. A lender will request permission to pull your credit file to examine your credit closely. While credit scores are important for any kind of loan, they’re often critical for an unsecured loan. With a secured loan, the lender can use the collateral you’ve put up to recoup their losses if you end up defaulting on the loan.
With an unsecured loan, they don’t have this luxury. Because of this, they’ll look closely at your credit history in order to make sure that your score falls within a range that’s acceptable. Every lender will have a minimum credit score that they can work with for this type of loan. Some lenders might approve an applicant with a credit score of 680, while others may require a minimum credit score of 700. If your credit isn’t good enough to qualify for one particular lender, that doesn’t necessarily mean that another one won’t approve you.
A lender will also look at your credit report in order to determine the amount of debt you have. This will play a major role regarding whether or not you get approved for the loan. A lender doesn’t like to work with borrowers who are in over their heads with debt. So, if you have what a lender considers to be an unmanageable amount of debt, they will not approve a loan.
Income and Size of Loan
A lender will also pay special attention to how much you make each month. They’ll want to know how much you make and where you work. They’ll speak with your employer in order to verify your employment and how much you’re paid. Income requirements are actually pretty strict. The lender will want to know if you make enough each month to easily handle making payments. They’ll compare your amount of debt to your income. This ratio will also play a big role in whether or not you’ll be approved for a loan.
The size of the loan you’re applying for is another key factor. The more money you ask to borrow, the more difficult it will be to get approved. The lender will look at your debt load, income, and your credit in order to determine the loan amount you’re approved for.
The Top Seven Things to Avoid with Unsecured Personal Loans
Whenever you apply for a loan, you’re entering dangerous financial territory. You’re placing your income at risk and you may even be subjecting yourself to some costly debt traps that are put in place by a lending institution. These following tips can help you to avoid any scams or gimmicks some lenders may throw your way.
Fight that temptation if a lender offers you more money than you need. If you have great credit, some lenders will try to convince you to take out a bigger loan and make smaller payments over a longer period of time. A lender isn’t offering to loan you more money to help you. Their only goal is to make as much money off of you as possible. You’ll never recover the amount of interest you’ll end up paying on a debt. We recommend taking out a loan for the smallest amount of time possible and making larger monthly payments.
Pro Tip: We also recommend insisting on a fixed interest rate. Make sure you keep an eye out for the word variable and avoid any loan that doesn’t offer a fixed interest rate. A variable rate can continue to increase and make more money for the bank.
Next, make sure you compare the interest rates of a secure loan with that of an unsecured loan. If you can save more money with a secured loan, you should consider asking someone to cosign or put up your vehicle or another qualifying item for collateral.
Regardless of how nice the lender is, never simply trust a bank to watch out for your best interests. Your bank is actually the least likely to offer you the best deal. They’re in the business of selling expensive banking products to existing account holders. Make sure you shop around for a deal that’s right for you. If you have an account at more than one bank, you might be able to leverage that in order to get a great deal from at least one of them.
Lenders enjoy sneaking in add-on terms into loan contracts. You should specifically ask if there are terms that must be met if you default on a loan or if you’re late on a payment. Before you sign the loan contract, be aware that there are other costs that come with it including late payment penalties, collection fees, and payment protection insurance.
Be on the lookout for sales gimmicks. A lender will have products they want to sell you and they’ll try to get you to add them to your loan. Say no to payment holidays and cashback plans. A loan that offers cashback will be more expensive. If you decide to pay off the loan early you’ll lose the cashback. If you choose a payment holiday, keep in mind that interest continues to build and will increase the loan repayment, and it can be very expensive if you choose to do it each year.