The Intricacies of Personal Loans: Why You Might Not Qualify?

Lending money is risky business. Earlier this month, The Aleph Blog provided some great insight as to why one should never co-sign for even their loved ones in Don’t Co-sign, Ever, but just as this type of lending is risky to the co-signor, so too is the process of personal loans risky for the bank.

What’s Changed?

Ten years ago, acquiring a personal loan from a bank may not have been an easier process, but borrowers were not as scrutinized as they are today. Before, you could get by with a credit score that was a little below average, or if you had a few late payments on your credit report. But, in today’s tough economy, and with many banks in crisis, most banks are taking a firm stand on what their requirements are. In the event that you do not fall into this molding, you are likely going to be denied a loan. So, what are big banks typically looking for?

• Steady employment with pay stubs for verification of income is absolutely necessary, as lenders want to be sure that you have the means to repay their loan.
• Taxes for at least the previous year are often requested for verification of income and proof that you are actually paying taxes.
• Bank statements may be requested for verification of debt payments and liquid assets.
• Proof of identification is a given, as the bank will want to know you are the individual you say you are.
• Solid credit history demonstrating minimal late payments is an indication of how well they can trust that you will repay your loan.
• A strong credit score, typically somewhere above (or around) 640, is typically the problem that most people have when they are denied a loan.
• Some lenders will request that you provide them with proof of residence, whether that is through rental history or mortgage documentation.
• Lenders want to see that you have some type of collateral, depending on the size of the loan you are applying for.
• Minimal amounts of debt are preferred by most lenders so your debt-to-income ratio will also be examined thoroughly.

The requirements for a loan are certainly going to vary based on the bank that you are applying to, the terms of the loan and the amount which you plan on borrowing. Banks no longer want to take risks with individuals who are borrowing large amounts of money and have had negative marks against them. The economy that has put so much strain on households all over America has affected banks in much the same manner.

But, I Need Money!

If you are on the borrowing end of the stick, and recognize that the economy and lending possibilities are low, life can be difficult. No matter how much you need money and how honest your intentions of being timely with each monthly payment are, this isn’t a measurable number that the banks necessarily care about. There is no score for necessity and no bonus points for good intentions.

I specifically like the way that Forbes notes in their article 5 Tips for Getting Your Bank Loan Approved, that you need to have the proper expectations when considering a loan. Although, when applied to the case of potentially not being approved for a loan you still have to plan for the expected. If you don’t have the greatest credit, don’t expect to qualify with one bank over another. Repeatedly applying for a personal loan can actually damage your credit score even further. It is a tough lesson to learn, but unsecured personal loans from traditional banks may not be the answer for your particular situation.

However, rather than let denial of your application keep you from getting the financial assistance you need, seeking out the assistance of a non-big bank affiliated lender could be the answer. Some of these companies make the loan approval process quick and they have liberal credit policies, which can help you to get the money you need. While they might not be a big bank name that you recognize, many of these lenders are in business to help individuals with credit troubles, and other problems that banks might deny individuals loans for. Many of these lenders even allow you to get qualified online and can transfer your loan amount into your bank account. This is a much better option than getting a pay day loan or car title loan, as these come with excessively high interest rates and require repayment much faster than traditional loans.

Qualifying for a personal loan has become more difficult, but denial from a big bank isn’t necessarily the final answer. Keep in mind that there are plenty of options that are made available to those of us who need cash for anything that inevitably arises.