Requirements for a Personal Loan

By Valencia Higuera

  • Overview

    Requirements for a Personal Loan
    Personal loans are useful, and they've helped many people achieve their goals. Common uses include credit-card debt elimination, home-improvement projects and business start-ups. However, obtaining a personal loan isn't easy. Banks and credit unions have personal loan requirements. Individuals who meet these requirements can generally acquire a loan with little hassle. On the other hand, if you don't meet the bank's requirements, you can't obtain financing.
  • Function

    Despite the fact that banks are in the lending business, they take a risk with every loan. Some borrowers submit late or skipped payments, whereas other borrowers stop paying on their loans altogether. To decrease the default rate, banks and other institutions have to set specific loan requirements. Before approving an applicant, lenders carefully evaluate their loan application and credit report. Applications include information about their employment and income. Meanwhile, credit reports reveal a borrower's credit habits.
  • Types

    There are two types of personal loans: secured and unsecured. To qualify for a secured personal loan, applicants need acceptable credit and collateral. The value of the collateral must be equivalent to the loan value. Suitable collateral may include a car title or other valuable piece of property. Unsecured personal loans don't require collateral. However, these loans typically feature higher interest rates; to qualify, applicants need a high credit score and adequate income.

  • Considerations

    Because lenders vary, it's best to contact different banks and inquire about their loan requirements. For example, what's the minimum credit score to receive an unsecured loan? Do they offer bad-credit personal loans? Do you need a co-signer? Knowing the bank's loan requirements before submitting an application speeds the loan process and improves your approval odds.
  • Benefits

    Establishing personal loan requirements not only benefit banks, it also benefits borrowers. Too often, people apply for loans they can't afford. If a bank were to approve these loan requests, borrowers might default on the loan, which would decrease their FICO score. Personal loan requirements protect borrowers. Lenders approve borrowers for a realistic amount, and borrowers obtain a monthly payment that fits within their budget.
  • Solution

    If unable to meet a bank or credit union's personal loan requirements, consider a cash advance or payday loan. These loans are available to all persons regardless of credit history. You don't need collateral or a co-signer. But you do need steady employment and an active bank account. Cash advances have expensive finance fees and late fees. However, you can keep fees to a minimum by borrowing a small amount and repaying the loan before or on the due date.
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