Getting personal loans at an affordable price – What’s the take
As the value of money keeps on increasing day by day, an increasingly large number of people are realizing their financial mistakes. It is only when the consumers get rejected on their loan applications that they come to know the time they had wasted in taking wrong financial decisions. Most of us are entirely dependent on loans for every little financial activity like renovating our homes, buying a car, paying our medical bills or even for paying the utility bills.
But how many of us land up with personal loans within our affordability? Very few of us! People who take out such loans are always looking for ways to save their dollars so that they can make affordable repayments and pave their way out of debt. But with a poor credit score and a high DTI ratio, do you think it would be possible to take out a personal loan at an affordable rate? Check out the different checks that you should do before you approach a loan lending institution about getting a personal loan.
- Give a glance at your savings account: Whichever kind of loan you take, the lender will not approve the loan amount if you don’t have enough money tucked into your savings account or your emergency account. How much do you have in your personal savings account? Or have you been saving money under your mattress? If you fall into the latter category, you can simply forget about getting a loan from the lender but if you’re someone who has been saving money, you should check if you have enough funds to meet your basic necessities and then repay the new loan that you’re taking out. In case the lender agrees to approve a loan for you without you having enough funds in your checking account, he will raise the interest rates on the loan to reduce his risk if you default on the payments later.
Check your credit score: The most important number that is checked by the lender before checking your loan affordability is your credit score. Your credit score is nothing but a three-digit number that speaks about your financial worth and lets the lender take a smooth decision about lending you a particular amount at a reasonable rate. But when you don’t have a stellar credit rating, you won’t impress the lender and even if he chooses to lend you the loan amount, he might charge you outrageously high interest rates that will in turn become unaffordable for you. Therefore, take credit repair steps before taking out a personal loan.
- Check your DTI ratio: Apart from your credit score, there is yet another number that holds utmost importance to the lenders and this is known as the DTI ratio or the debt-to-income ratio. This is the ratio between your monthly income and your monthly debt payments. The lender will see the portion of your monthly income that goes towards paying off all your monthly liabilities that you presently owe. According to the lenders not more than 36% of your monthly income should go towards your monthly obligations and so if your DTI ratio is more than this, you might be subject to sky-high rates.
Apart from following the above checks, you should also shop around and get multiple quotes from multiple companies. Compare and contrast the rates and the closing costs of the personal loans before signing the dotted line.
Author Bio – Allen Rey is a financial writer who has expertise in dealing with financial issues. He loves to contribute financial write ups to websites and blogs so that he can help people who are struggling with financial worries. He is also associated with some financial communities like Debt Consolidation Care. If you like the article you may join the community on Facebook where he is associated with.