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How Personal Loans Work

Consumers pursue personal loans for a multitude of purposes, ranging from personal emergencies to raising their credit score - see below: unsecured vs. secured loans.

Determining eligibility for a personal loan, dependent upon the type (let's assume secured), will come down to three primary factors:

  • Your current credit score as well as any discrepancies or 'black marks' such as poor borrowing history, bankruptcy, liens on your salary-employment, and vehicle repossessions.

  • Your current salary and using it to formulate the statistical likelihood you repaying the loan on time, as well as gauging your current cost of living to your income - in other words, can you afford the additional financial responsibility and debt, or are you over-reaching? If you're 'over-reaching', then it's likely that you'll either be denied for a personal loan, required to seek alternative options such as a 'secured loan', or face incredibly high interest rates - as high as 22% or more - along with providing proof and an explanation as to how you plan to afford the monthly payments and added financial responsibility.

  • Whether or not you've taken out loans in the past, if so whether they were paid, and lastly if your credit score is not optimal or desirable, are you able to obtain a co-signer for the loan?

  • The amount of personal loan you seek to take out - naturally the higher the loan-amount, the more stringent the requirements will be.

  • Personal loans, especially given today's economy in consideration of the economical downfall of 2008, are not as easy as they used to be to acquire. In fact, many people are turned down for personal loans, or pointed towards secured loans - which essentially require you to put up collateral or a down payment before receiving the loan. Even worse, and as some people might not realize, the more personal loans and loans in general you apply for, the more negatively impacted your credit report will become over time for these 'soft' or 'hard' credit-check 'hits'.

    Lastly, if you're set on obtaining a personal loan and are denied such, it might be worth shopping around to other banks, but also taking into consideration and applying for a 'line of credit' - which is essentially very similar to a personal loan, and won't necessarily be a lesser amount than had you received the personal loan that you originally applied for or sought out.

    Believe it or not, a personal loan can increase your overall credit score should you consistently pay back the monthly fee as well as interest - so it's definitely angled to benefit you in more ways than one should you stay on top of it!

    Click Here for the Personal Loan Calculator.
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