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What are Unsecured Loans

Unsecured loans have been the “go-to” option for borrowers with no collateral asset to pledge. It has provided amazing cash assistance for people that are direly in-need of funds quick. There are several types of loans that are considered unsecured. All of which, can be accessed online and the process is pretty easy. One of the few examples of an unsecured loan is a payday loan. Payday loans can be granted to the borrower on the same day. However, unsecured loans are generally offered with high-interest rates due to the absence of collateral assets.

If you’re looking for a loan, your credit remark is one of the biggest factors that affect the decision of the lender; however, that’s not the only thing they look at. Your financial health also determines their approval and the interest rate to be charged in your advance.

What Lenders Check Before Approving Your Loan Application

In this guide, you’ll know the basic criteria that lenders usually look at before they approve a loan.

Credit History

A credit remark is a three-digit number that determines your behavior when repaying a loan. Although some lenders might still accept those who have poor credit remark or have no credit history at all, the interest rate charged to the loan is normally higher, thus making the debt more expensive.


While some lenders can accept those who have a damaged credit history, you might get rejected easily if you don’t have a stable source of income. After all, what lenders want is to get their money back plus the fees and interest rate charged. With a high income, the loan provider may assume that you are capable of repaying the loan without any hassle.

Debt-To-Income Ratio

Apart from the income, the lender may also look at your debt-to-income ratio. This is basically the percentage of your income that is used to cover your monthly debts. If the ratio of your debt is higher than your income, it might be an indication that you cannot afford the loan, thus your loan application may be declined.

Employment History

For most lenders, it’s important for their borrowers to be employed for at least 6 months or at least a year, depending on the type of loan being borrowed as this indicates your income stability. If you’re self-employed or unemployed, you should be able to provide an alternative source of income. However, this won’t guarantee that your loan application will be approved but in case you’re granted, you will be charged with an expensive interest.

When you take out a loan, expect lenders to look at your credit score to decide whether to give you a loan or not. There are so many things that they can glean out of your credit file, after all. From your past and current debts to your payment history, it is one document that would help make it easier for them to assess whether you’d make for a good borrower or not.

What Lenders Do Prior To Accepting Your Application

However, lenders do not just base their decision on your credit score alone. They will also want to know how much money you’re earning at present. After all, how much you can afford to pay would depend considerably on your regular earnings. This is why loan companies will want to find out what your present income is to determine the affordability of the loan you’re interested in taking out.

Assessing How Much You Can Borrow

When calculating how much they should let you borrow, lenders will take a look at your basic income. If you are employed regularly and getting a regular salary every month. It would help your cause so much if you’re receiving quite a good sum. If you have investments or pensions, it can help augment your income as well. If you are getting any spousal support or child maintenance, lenders will want to know about that too. In addition, you’ll also need to declare if there are any other extra aments or earnings that you are getting on the regular such as from freelance work, a second job, or others.

Tips for Self-Employed Borrowers

If you happen to be self-employed, you’ll need to prove to the lenders that you’re getting a regular income from your company or business. For this, you’ll be asked to provide business accounts, bank statements, as well as details of your paid taxes.

If you can show to the lenders that you have a good income combined with a good credit score, you’ll further increase your chances of being granted a loan.