» Articles

Personal Loans

- Avail what you can repay

Most people fall prey to bad debts because they don't manage their finances properly. This results in regular arrears and defaults while repaying the loan. In extreme situations, CCJs, insolvencies and bankruptcy may also occur. So, it’s advisable to repay the loans timely to prevent further troubles. A bad credit history comes in the way of getting personal loan ahead. Though bad credit personal loans are available in the UK loan market, they attract high APRs.

While selecting loans, most borrowers avail more amount than they can actually afford to repay. Their debts become higher than their income and this eventually leads to a poor DTI (debt to income) ratio. Also known as the debt ratio, DTI is the percentage of the borrower's gross monthly income divided by their outstanding debts. If DTI > 0.36, the borrower will face problems in procuring loans further as this DTI denotes a poor paying power

In case of secured loans (second mortgage), the lender evaluates the home equity and grants personal loans in accordance with it. Credit score and DTI ratio does not matter too much in this case. The lender feels secured by the presence of borrower's home as collateral and therefore, he ignores poor credit score and DTI to a certain extent. However, in case of unsecured personal loans, the lender grants loans only on the basis of the credit worthiness of the borrower. If the lender does not get proper reassurance through the DTI and credit score, he may reject the loan application.

Sine the lender has no asset to fall back upon; the risk involved for the lender in case of

unsecured personal loans

 deal is far greater than that in secured loans. Though the lender can take legal action in order to recover money, such a legal process will take a long time. Moreover, if the borrower has defaulted on secured loans as well, he will most probably lose his asset. If the borrower is left with any asset, the unsecured loan will be repaid to the lender. So, the lender's criteria become all the more stringent in case of unsecured personal loans.

The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in Business Administration and is currently assisting Apply-4-Loans as a finance specialist.

Our rates vary from 7.9% APR Variable to 19.9% APR Variable. The highest rate is for customers with severe credit problems

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. ALL LOANS ARE SUBJECT TO STATUS.