Finance & Insurance

What is Required to Qualify for a Personal Loan?

A personal loan might be the solution to some of your financial woes. The application process is straightforward and does not take that long to complete. However, there are some prerequisites for obtaining a personal loan that applicants must comply with. There is paperwork to complete to secure a personal loan.

Before taking the plunge, know the implications of a personal loan to ensure you make an informed decision. Here is what it takes to qualify for a personal loan:

Application Process

Given the pandemic’s challenging circumstances, many financial institutions and other lenders who offer online personal loans have seen an increase in potential clients. People are avoiding in-person visits at offices because this risks spreading the coronavirus.

It is also far simpler to complete an application online. Usually, there are forms to complete electronically, and you need to attach some supporting documentation to your application. Accuracy is an essential component at this time as it ensures the speedy completion of the loan transaction. Most online personal loan applications are approved within minutes or hours, and you could have the money less than 24 hours after completing your forms.

A personal loan is unsecured, meaning that there is no need to provide collateral to obtain it. These loans are short-term, with repayment periods that are no longer than seven years as a rule. When applying for a personal loan, applicants are allowed to select the period during which they wish to repay the loan.

The sooner you pay off a loan, the less interest you pay on it. Therefore, it is in your best interests to repay a loan in as short a time as possible, but do not commit to a period so short that you cannot afford the monthly installments.

Evidentiary Criteria

The lending industry is governed by laws and regulations that stipulate the conditions under which loans are granted. Banks and private lenders have additional criteria that potential clients must meet to qualify for a personal loan.

Some of the basic requirements for personal loan eligibility come from three documents: proof of residence and identity. To avoid fraud, lenders have strict rules to ensure that you have not stolen someone else’s identity to obtain a personal loan. Therefore, the personal information you put on the application form must be verifiable.

As you must be of the legal age of consent to acquire a loan, you must prove your age. Some companies only offer loans to people over 25, while others lend money to borrowers who are at least 18. Many lenders also have a maximum loan age, meaning that you could be excluded from applying for a loan if you exceed that age.

Look at a specific lender’s criteria to determine that you comply with the age requirements before applying. Lenders will insist on a document that includes a photograph of you and your birth date.

You should also have a verifiable email address and mobile telephone number. Lenders will want to confirm these contact details before proceeding with your application. Some companies might insist that you submit proof of your address, which you can do by providing an account or bank statement that bears these details.

Another consideration in the granting of personal loans is UK residency. You might need to prove your British nationality or permits that allow you to be a UK resident. There may be follow-up queries in this regard, so keep the relevant paperwork handy.

Financial history

Your past financial behavior is another vital component of a personal loan application. Most lenders run a credit check to ensure that you do not have outstanding debt or a history of not making repayments on loans. Each unpaid debt damages your credit score, lowering it.

When you do not settle your debts, they keep accumulating with additional interest, further harming your credit rating. It is challenging and time-consuming to repair a less than ideal credit score.

While trying to rehabilitate your credit rating, you are unlikely to secure any loans or other financial products. Financial judgments, pending court cases, bankruptcies, and sequestrations do not count in your favor either when you apply for a personal loan.

Not all lenders reject applications out of hand because of a spotty financial history. However, they may charge a higher interest rate to cover the risk of lending you money.

Affordability

The final criteria a lender considers is whether you can afford to repay a personal loan. For this, lenders require proof of employment and income. They will also calculate your salary to know if you are eligible to take a loan. Lenders have different rules, so you need to ensure you know whether they need a letter from your employer, salary advice slips, or both.

Some lenders have set rules about how much money applicants should be earning annually to consider your loan application. Find out what your preferred lender’s requirements are before you apply.

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