Personal loans are loans granted to a person by a financial lending institution. The repayment of the loan is agreed upon by the lender and recipient upon approval of the loan. These loans are different than vehicle or home loans because the amount borrowed is generally much lower. When applying for a personal loan, the financial institution will look into several different factors to decide if a person qualifies. The lender will considers a persons credit score, unsecured debt, current bills, income, and how much the asking amount is for.
A persons credit score is a number lenders will use for any loan. This number fluctuates when businesses report the repayment status of financial obligations. Medical bills, credit cards, living expenses, and other bills a person may have will report to the credit score. When a person repays on time without any delinquencies or if they are delinquent on payment it will reflect. If a person files bankruptcy, it will reflect in the credit score report. The lending institutions generally require the credit score to be a certain number before they even consider a loan granted. The credit score will also determine if the person needs a cosigner for the loan.
Unsecured debt is any debt with a fluctuating interest rate. This could qualify as credit cards or balloon payments on a vehicle or house loan. Unsecured debts are a dangerous factor in the equation because they are at risk of getting out of control and could prevent the lender from receiving their monthly payment. Before applying for a personal loan, it is best to minimize as much unsecured debt as possible. When the debt is minimized it will increase your credit score and reduce a persons monthly budget giving them a better chance of being approved for the loan requested.