Splash Financial Review: Personal Loans

What Factors Affect Being Approved for a Personal Loan?

A personal loan can be an ideal tool to consolidate debt, pay an emergency expense or start a business. However, there is no guarantee that a lender will approve your request for financing. Let's take a closer look at the factors that a financial institution will typically look at when evaluating a loan application.

Do You Want a Secured or Unsecured Loan?

A secured loan is generally easier to obtain than an unsecured loan because there is less risk to the lender. If you fail to make a payment in a timely manner, the bank simply seizes your collateral and liquidates it to recoup any losses it has incurred. Common types of collateral include the title to a home, car or other valuable assets. In some cases, you can use funds inside of a bank or brokerage account to secure a personal loan.

What Is Your Credit Score?

Historically, personal loans were reserved for those who had poor credit scores or didn't have any credit history at all. Today, these types of loans are available to borrowers with any credit score. To get the best interest rate, you will need to have a credit score of at least 700. To simply qualify for a personal loan, you'll generally need a score of at least 550.

Do You Have any Significant Blemishes on Your Credit Report?

If you have filed for bankruptcy at any point in the previous seven years, it will appear on your credit report. The same is true if you are past due on other accounts or have defaulted on a loan in the last seven years. However, lenders will generally only hold these things against you if they have occurred in the past two years. Otherwise, they will assume that you have learned from your mistakes and are better able to manage your debt today.

How Much Do You Earn Each Month or Year?

You will need to show proof of income as part of the personal loan application process. This may be done by attaching a copy of your most recent pay stub, a copy of your most recent tax return or by supplying a copy of a recent bank statement. Many lenders will have minimum income requirements that they will disclose when it comes time to submit your applications.

What's Your Debt-to-Income Ratio?

Your debt-to-income (DTI) ratio will play a significant role in whether you qualify for a loan. It will also play a role in determining how much you are allowed to borrow. Ideally, you will have a DTI of less than 50% to maximize your odds of getting the financing that you need.

To determine your DTI, simply compare your monthly income to your monthly debt obligations. For instance, let's say that you earn $10,000 a month and have debts totaling $5,000 a month.

In such a scenario, your DTI would be 50%. If your debt obligations totaled $4,000 a month, you'd have a DTI of 40%. Ideally, you will look for ways to get rid of debt whenever you can even if you aren't planning on borrowing money.

How Long Have You Been Employed?

Your employment history will likely have an impact on whether or not you are approved for a personal loan. If you are unemployed, your chances of receiving the money that you want or need are lower than if you have a job. This is because without a job, you may lack the income needed to make your monthly loan payment.

It's worth noting that you may have a harder time getting approved for a personal loan if you are self-employed or if you have only been employed for a short time. This is because it may be harder to prove that you have the ability to earn a steady income over a period of several months or years.

Lenders may overlook your lack of a steady wage income if you have sufficient cash reserves or have assets that you can liquidate if necessary. Lenders may also loan to those who have alternate ways of earning money such as income derived from a rental property or royalties from a book deal.

Do You Have a Cosigner?

If your credit score is 700 or higher, you should be able to get a relatively low interest rate even if you don't have a cosigner. This may be especially true if you opt for a secured loan as opposed to one that is not secured by collateral.

In the event that your credit score is below 700, it may be in your best interest to at least consider asking someone to vouch for you to a lender. This may also be a good idea if you have filed for bankruptcy in the past 24 months or may otherwise present an elevated risk to a bank or other financial institution.

Your cosigner can be anyone who is over the age of 18 and is of sound mind when agreeing to serve in such a capacity. Therefore, you can ask a friend, or any other adult who you know to help you obtain the money needed to stabilize or improve your life.

Do You Have a Relationship With Your Preferred Lender?

It may be easier to get a loan from a bank or institution that you have a prior relationship with. This is because they know that you have a track record of repaying your debts in a timely manner. Furthermore, the loan application process may be easier to complete because most lenders will save your information for future use. Therefore, you may be able to simply confirm that your information is correct and then send the application in for approval.

How Much Do You Want to Borrow?

The amount that you want to borrow could have an impact on whether or not your application is approved or denied. Let's say that you earn $25,000, have a DTI of 25% and no assets, it may not be feasible to borrow $100,000. It's also important to point out that some lenders will place limits on how much they will let a single person borrow. Therefore, even if you might otherwise qualify to borrow $100,000, you may only get $50,000 because that's how much a lender is willing to part with.

What Is the Purpose of the Loan?

As a practical matter, you can use the proceeds from a personal loan for any purpose that you can think of. However, it's not uncommon for lenders to only cater to certain segments of the market. For example, a lender may choose to work only with those who are using a personal loan to consolidate credit card balances. If you were looking for funds to pay for college or take a vacation, you probably wouldn't want to work with a niche financial institution.

Other Factors May Apply If Deemed Relevant

A lender reserves the right to impose any restrictions or terms that it wants as long as they don't violate state or federal lending laws. For example, your application may be denied if you have too many open credit accounts on the date that it was reviewed. Credit accounts might include credit cards, auto loans or other outstanding personal loans. If you have any questions about the loan application process, be sure to talk to a lender representative prior to submitting a request for money.

Personal loans may be ideal for those who have bad credit or no credit history at all. They may also be ideal for those who are trying to consolidate their debts at a lower interest rate. If you are in the market for such a loan, it may be a good idea to compare rates and terms from at least three different lenders. Doing so may make it easier to determine if you can find loan terms that meet your needs and budget.

Easy Ways to Start Saving Money

Saving money isn't fun. Why put it somewhere when you could spend it now, on that thing you've been wanting for months? Well, there are some easy and simple ways to start saving now, so that if there's an emergency - like a car accident or an unexpected health bill - you can be assured to have money for it. Being prepared isn't the trendiest idea, but in the future you'll thank yourself for saving your behind!

Saving money doesn't have to be all dark and dreary. There are a variety of small changes you can make to your daily routine to start preparing for the future.

The first tip to cut daily costs might just be the hardest for some. Many people spend money every day on coffee, especially from those expensive java bistros. Cue the gasps - but if you're still reading, then listen to this: While many people spend money on coffee every morning, major coffee companies (you know the ones) upcharge drinks to an almost comical degree. The reason these companies get away with this is because they count on the consumer being unwilling to make their own and come to them instead. You don't even have to get up any earlier if you make your own cup of coffee in the morning, since you'll be saving time on your commute. But getting up every morning and making your own coffee is a much more cost efficient alternative to giving a chunk of your paycheck to some other company.

Another simple trick to saving money is to cancel subscriptions you're not using. We can almost hear you shrieking "but what if I need to use it!" The thing is, you won't. If you're spending even $10 a month on something that you're not using, than it's not worth it. It's hard to stop something that used to bring you joy, or even that you're used to. But if you seriously want to start saving money, this is one of the most achievable and easy ways to do it. Go through your spending and look at all the things you're paying for that you didn't use this month. Then, go back and look at the previous month. If that isn't enough to convince you, go back one month further. If you haven't used something in 3 months, then you've spent a quarter of the year paying for nothing and it's time to stop.

A final bit of advice on the best ways to save money is another little thing. Use the 48 hour rule. If you see something and really want it, wait 48 hours. If you still want it after that, than you know it's not an impulse buy. On the other hand, if you've completely forgotten about it, then you just saved yourself some money.

It's especially difficult, the younger you are, to get out of the You Only Live Once mindset. You see something, and you think "hey, I really want that thing! I'll totally use it all the time, even though I've never thought about it before today!" Really - it's not worth it. You have to stop thinking "I need this now because it will make me happy", and instead think of the future. When considering whether you should blow your money on the impulse buy, picture the expensive item and think of how much more you'll enjoy it if you save for it.

These are just a few little things you can do to start saving money. Remember that it's important to save your money now, in order to save yourself future heartache. Soon you'll be on your way to affording that trip to Paris or whatever else you want!