Unsecured Personal Loan Not Always Easy to Qualify For

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An unsecured personal loan comes with different requirements than secured personal loans. When you take out a secured loan, the lender requires you to put up some form of collateral before they will approve you for the loan. This way, the lender has something of value to keep and sell if you cannot repay the loan as you’ve agreed. If this happens, your credit will certainly be ruined.

The consequences you face for not paying back a secured personal loan are pretty heavy. The asset you pledged as collateral is lost and your credit destroyed. To add insult to injury, if the item you put up as collateral does not sell for enough money to fully pay off the loan, you would still likely owe the balance to the lender.

An Unsecured Personal Loan are Only Approved for Borrowers Who Can Repay the Loan as Agreed

Since no collateral is being put up when you take out an unsecured personal loan, being approved depends on your ability to pay the loan back per the signed agreement.

To be approved for an unsecured personal loan, you will need to prove to your lender that you have sufficient income to repay the money according to your agreement. In this case, the lender cannot rely on selling your valuable asset if you cannot repay the loan.

Lenders must weigh several factors before approving an unsecured personal loan:

  1. Applicant’s Credit History: Anyone applying for an unsecured personal loan must expect the lender to check their credit report. If you have a history of repaying the loans you’ve previously taken out in accordance with your agreement, chances are you have built up a good credit score. A computer program calculates credit scores based on the content of someone’s credit report, which details their credit history. An individual’s credit score indicates their creditworthiness.

To gain approval for an unsecured personal loan, you must have a good credit score. Unfortunately, if you do not have much of a loan history or have bad credit due to irresponsible spending or losing your job, you won’t qualify for an unsecured loan. However, all is not lost because you can improve your credit by taking certain steps.

  1. Income Verification: You can expect that any bank, financial institution or lender will verify your income if you ask to apply for an unsecured personal loan. They have to verify that you have the income to repay the loan as promised. In fact, you will need to submit proof of income for any type of loan you apply for, whether it is secured with collateral or unsecured.
  2. Valid Identification and Bank Statements: You are going to need to present a valid ID and copies of your bank statements when you apply for a loan. Once they see your debt-to-income ratio and all your other expenses, they can determine whether you can realistically afford the monthly payments.

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