How Do Income And Credit Score Affect Unsecured Loans?

It is widely known that income and credit score are both requirements for loan approval. However, unsecured loans are loans of a special nature. The lack of collateral alters the requirements for approval and these two factors have a different relative importance when it comes to endorsement of unsecured loans.

When dealing with regular loans, a steady and provable income is a condition for approval and credit score, unless too low, will determine only the interest rate of the loan. Unsecured loans maintain these characteristics but due to the lack of collateral and the higher risk involved in the financial transaction, credit score acquires a greater importance. The income requirement also varies its behavior.

Income Requirements

There are mainly two kind of requirements related to income on unsecured loans qualification: Income Nature and Income Amount. As regards the nature of your income, it has to be stable and verifiable. Stable means that if you have a job you need at least six months on the same job and if you work on your own you need at least six months on the same or superior tax category than the minimum required.

As regards to amount, depending on the type of loan and the amount of money requested, you will need an income that will let you afford the monthly payments without sacrifices. Usually the installments do not have to exceed 35% or 40% of your income since it is supposed that you have other expenses and that unexpected situations may take place and you will need to have extra cash to cope with them.

Credit Score Requirements

Unsecured loans require a good credit score for approval. If you want a considerable loan amount, a flexible repayment program and low monthly payments you will need to show a good or perfect credit history free from stains and delinquencies. The last six months of your credit report will be scrutinized exhaustively and any problem may result in a loan decline.

There are however, certain unsecured loans that may provide small amounts for short terms with bad credit or even without checking your credit report at all. These last loans are cash advance loans that due to the lack of collateral are also considered personal unsecured loans. Though some lenders offer regular unsecured loans with less credit requirements, credit score is always an issue when it comes to qualifying for this type of loans.

Problems & Solutions

If you lack the income necessary for approval, you may try requesting smaller amounts or applying with the aid of a co-signer. The income requirement is based on the resulting loan installments which can never represent more than 35% or 40% of the applicant income. By reducing the loan amount you are also reducing the income requirement. The same happens if you request a longer repayment program but that is not always feasible.

A co-signer's income can be added to yours in order to meet the income requirement. The lender does not mind who actually pays for the loan installments later. He just wants to make sure that those who are legally bind by the loan contract have the necessary income to afford the monthly payments.

source : http://www.goarticles.com/