Five Key Elements in a
Cheap Personal Loan

Ensuring that you qualify for a cheap personal loan

Finding a cheap personal loan can be frustrating if you are not educated in some of the key elements. Being knowledgeable in those key issues can provide the insight you need toward finding a personal loan with the cheapest rates possible.

Credit score

Your credit score is one of the main elements that help to determine whether an individual qualifies for a cheap personal loan. All lenders use a borrower’s credit score to determine the interest rate and other fees associated with any loan, but some lenders are stricter on that factor than others. In other words just because one lender quotes you a twelve per cent interest rate because of your credit score doesn’t mean every lender will quote the same or similar rate. Some lenders are interested only in the crème of the crop while others specifically design their loans for those with lower credit scores.

Employment stability

While lenders understand a borrower’s need to make career changes that are beneficial to their financial well-being, they want to ascertain that a borrower does not continually change jobs for invalid reasons. Job downsizing and layoffs are understandable but the borrower who continually goes from job to job for personal reasons such as internal conflict and the like are poor credit risks and will pay a higher interest rate than a borrower with a steady employment history.

Employment longevity

Although lenders do not look at employment longevity for all borrowers, it is an essential factor for borrowers with a low credit score. The lender wants to make certain that he has a way to collect his money in the event the borrower defaults on his cheap personal loan. Someone who has been on his job for many years is not likely to leave prior to retirement and thus the lender feels he can collect his money by using the assistance of the court system. That doesn’t mean they like to resort to civil judgments, but they will do so if forced.

Income

The income of a borrower also has a bearing on his ability to obtain a cheap personal loan. A lender is not going to loan money to someone what does not show the financial ability to repay the loan. Even if you have been working for the same company for thirty years you will not receive the best interest rate if your income is too low to quality you for a lower rate. Although that seems to be a reverse trend, interest rates are based on credit risk, and those with lower salaries are higher risks than those who make more money.

Debt to Income Ratio

Your debt to income ratio is another key factor in determining whether you qualify for a cheap personal loan. This is another risk factor and as such will be used to determine a borrower’s interest rate. In some cases if your debt to income ratio is above a certain percentage the lender will not approve your loan at all. Each lender has a different policy so you cannot judge your potential success based on any one lender’s policies.

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