Personal Loan - an External Monetary Help

by : Aisha Cristal

Many a times planning go awry. This may happen in your personal life as well as professional life. You may lose your job or suffer a big setback in the business. It is not as if people do not foresee these circumstances and fail to make provisions. The problem arises when the situation becomes too bad and your savings and reserves fail to bail you out. To counter these circumstances, a financial help from some external source becomes necessary.

On personal level, financial assistance can be taken from relatives, friends or parents. However, this is not always possible to do so. Many people intentionally avoid this type of lending and borrowing fearing that their relations may get strained due to inter-personal monetary transactions. On professional level, there are many lenders who may oblige your loan request.

There is a big loan market in the UK with almost all the banks, building societies and other financial institutions providing loans to the consumers. The loans can again be divided into commercial and personal loans. A personal loan is basically an unsecured loan wherein you do not require any security. However, lenders prefer that borrower has a good credit record, a decent monthly income and a debt to income ratio of less than forty per cent.

When you apply for a personal loan, the debt to income ratio assumes importance. A debt to income ratio reveals the repayment capability of borrower. If you have an income of ?5,000 every month and you are paying ?750 every month to the creditors, it means that debt to income ratio is 15 per cent. Anything upto 20 per cent is considered very good, reflecting that you have an excellent repayment capability. Lenders normally do not refuse credit if you have less than 40 per cent debt to income ratio.

Take another case where you have 40 per cent debt to income ratio coupled with a bad credit history. Now, this scenario becomes grim as far as availability of loan is concerned. Lenders provide bad credit personal loans with utmost caution. If you have bad credit as well as a debt to income ratio of 40 per cent or more, there will be difficulty in getting borrowing money. You will have to contact sub-prime lenders who provide bad credit personal loans. These loans are high risk loans as far as lenders are concerned and, therefore, the lenders charge high interest rate. The only good thing is that you may be able to get money for fulfilling your requirement.