Your Debt to Income Ratio is Crucial

By: amenda dorothy

There is a rising problem of bad debts in the UK and the total debt situation is fast spiralling out of control. The statistics show that personal debt is increasing in Britain by ?1 million every 4 minutes and the amount of personal debt at the end of February 2007 was ?1,310bn.

All this has made the lenders a little bit more cautious while lending unsecured personal loans. Now, they demand a good credit history as well as sound repayment capability. Many credit reference agencies can provide an insight into your credit history on nominal charges. Lenders use the services of these agencies before they sanction you any loan amount.

As far as sound repayment capability is concerned, the lenders rely on your debt to income (DTI) ratio. This ratio compares your monthly income and the monthly amount you spend to maintain your debts. The lower DTI ratios are better because lenders consider borrowers with low DTI ratios as having a better capacity to repay their debts.

The DTI ratio of less than 20 per cent is considered to be very good by the lenders. So, if you have a monthly income of ?2000 out of which you are paying ?400 towards repayment of loans, it means that your DTI ratio is exactly 20 percent. You are comfortably placed and lenders will be more than willing to offer you unsecured loans.

Many Britons prefer unsecured personal loans because they do not want to pledge their homes and involve into a risky affair. A data from the Royal Institution of Chartered Surveyors (RICS) reveals that more than 50 families a day may lose their homes in the UK during 2007 just because they might not be in a position to maintain their debt repayments.

Unsecured personal loans can be used for many purposes like going on holidays, renovating your home, undergoing cosmetic surgery, buying a car, etc.

Debt, Loans & Business Cashflow
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