Unsecured Loans, Credit and Income: What Do I Need?

Do you want to know what is needed to qualify for unsecured loans? The answer to this question is not simple. There are many variables that interact and determine approval or decline. However, there are basically two types of requirements that can define unsecured personal loan qualification: credit requirements and income requirements.

These two variables are also modified by other factors like the loan amount, the loan repayment schedule, the interest rate. Moreover, all these variables affect each other and are also a consequence of the risk involved in the financial transaction which is ultimately defined by the applicant’s credit history and income among other things.

Consequences Of Lack Of Collateral

The lack of collateral turns a loan into a risky financial transaction. Collateral brings security in an economic as well as psychological sense. It provides the lender with a guarantee that the money he invested will be recovered one way or another since in the event of default, a short legal procedure will let him collect through the sell of the asset used as collateral.

Thus, to put it plainly, lack of collateral brings additional risk to a lending process and this will be translated into higher interest rates, smaller loan amounts, shorter repayment programs and generally speaking, worse loan conditions. But more importantly, it will make loan qualification into a more complicated and harsh process.

Credit Requirements For Loan Approval

In order to get approved for an unsecured loan, the lender will require the applicant to have a good credit rating. Most importantly the credit history of the borrower must not show delinquencies or other stains that may make the lender doubt the applicant’s willingness or capacity of repaying the money owed.

As regards to credit history, recent credit history is far more important than past credit history. Thus, if you had problems in the past but you can show a recent credit history with impeccable performance, chances are that you will get approved. The opposite is also true: if your past credit history is outstanding but you have a recent delinquency, unless you can justify it by extraordinary circumstances, chances are that you will get declined.

Income Requirements For Loan Approval

As regards to income, getting approved for an unsecured loan requires a trustworthy source of funds. The income amount you will be required will depend basically on the loan amount you request. However, there are some specific limitations that have to be taken into account.

Most lenders will require that the amount of the monthly installments does not exceed 30% of the applicant’s income after taxes. This is due to the fact that lenders know that unexpected expenses always add up to the budgeted ones and reduce the ability of the borrower to meet his obligations.

Moreover, you will be required to show proof of a steady income. This can be done by showing backing up documentation like copies of your pay checks or tax presentations. In any case, you might be required to show proof of at least two years on the same job or related jobs with equal or superior income and no gaps at all.

Source by Melissa Kellett

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