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
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
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%
more - along with providing proof and an explanation as to how you plan
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
should you stay on top of it!
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