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A number of people use personal loans for various reasons. Some lenders may require a borrower to be earning a minimum income in order to qualify. There are also some that will need proof from borrowers that they can afford to repay the loan.
Requirements vary from one lender to the next. Most lenders also take into consideration various aspects of a borrower’s financial situation to find out if he can handle a loan and the responsibilities attached to taking out one. One very crucial factor that will come into play is the debt-to-income ratio.
This is a comparison of your monthly debt and the gross income you earn monthly. This measurement makes it easier for lenders to assess how well you have managed paying back what you have borrowed. An excellent ratio would be 20% while a borrower with a ratio of 40% or more is considered to be going through some financial troubles and will be less likely approved for a loan.
One good way of determining your borrowing power is to find out whether the loan is something you can afford or not. When working out repayments, consider the loan amount, loan term, interest rates, and other fees of your personal loan of choice. If after the calculation you find out that you have a debt-to-income ratio of 40%, then it is best to not take out any more loan.
Determining your loan eligibility
When you apply for a loan, lenders will look into a number of details to assess whether you are qualified or not. Among these are your employment status, your current debt, and how much you are earning monthly. They’d also want to get a look at your expenses, your financial commitments, and if you have assets that can be used as loan security. More importantly, they will also need to consider your credit score.
What to do if you fail the loan requirements
If it turns out that you do not meet the minimum requirements for the loan, there are some steps that you can take to remedy that. For instance, you can:
Choose a loan that is more affordable. You may be ineligible for the loan because it is way too expensive for you. Besides, you should never borrow beyond your means to pay back. Consider other loans that have fewer fees and lower interest rates attached to it to give you a much better chance of managing the repayments well.
Find a guarantor. If you have family, friends, or colleagues who have good credit scores, you can ask them to be a loan a guarantor. While they may be taking on a huge responsibility, they would give you a good chance of getting approved for a loan.
How to Get a 20,000-Loan
Getting a £20,000 will let you do so many things from paying for a wedding, improving your home, or even paying off your existing debts. However, the big question is whether you’ll get approved or not for one
Whether you have good or bad credit, there are choices available for you if you need access to a large sum. Both traditional and specialised lenders offer a £20,000 loan. They can even come in a variety of forms from secured to unsecured, long-term or short-term.
Understanding your Options
If you have an outstanding credit score, your choices are usually going to be more than plenty. Most lenders will be happy to loan the amount to you and will even give you competitive rates. Your current bank might even even happy giving you same-day funding.
A bad credit might limit your options. But there are lenders that can assist you still. There will usually be more requirements for you to comply with and a guarantor or a security may be required. Expect interest rates to be significantly higher as well.
Self-employed borrowers may have to provide a ton of documents to prove that they can afford to pay a £20,000 loan. Often, lenders would require a year’s worth of financial statements to assess whether a borrower is indeed earning enough to afford the repayments.
Being able to secure the loan can mean less risk on the part of the lenders. This could mean lower borrowing rates. However, the amount that you will be allowed to borrow would have to depend on the overall value of the asset you are using as security.
Comparing £20,000 loans
When comparing different £20,000 offers, consider first the total payable amount. Aim for the lowest possible figure you can find while also ensuring that you can conveniently afford the monthly repayments.
How long the loan will take to get repaid can affect the overall costs involved as well. Generally, you pay less in interest rates if you go for a shorter term. However, this can mean higher monthly repayments.
Check the loan rates as this can vary from one lender to the next. This would also vary depending on your financial state as well. Typically, you can get competitive loan rates when you have a good credit to start with. Make sure to provide potential lenders with as much details about yourself so they can give you a more accurate representation of what the final costs are going to be.
Most importantly, only apply for loans you are eligible for. Constantly applying for loans that you do not qualify for in the first place will just pull your credit rating down.
Not only will this affect your chance of getting a loan approval now, but it might hurt your chances of getting approved for credit in the future.