Find a Personal Loan from a Bank: What Elements Do You Need?

Many people want to get personal loans for different reasons. You may need to pay medical bills, finance home or car repairs, or even pay for a wedding or vacation. However, the process of securing a loan from a bank or other traditional lending institution can be tricky business. Banks, like all lenders, need to make money when they give personal loans. Therefore, there are specific characteristics that they look for in borrowers to ensure that this can happen.What elements do banks look for when evaluating a borrower for a personal loan? This article will break down the necessary elements for securing a personal loan from a bank to help you determine if this is a possibility for you.Element 1: EmploymentHow much money you earn and the consistency of your paycheck will make a big impact on a bank’s decision to grant you a loan. If you are unemployed or do not make a sufficient amount of money to ensure your monthly repayment of your loan, then a bank will not be likely to grant you that loan. In essence, you need to prove that your current income is sufficient enough to cover all of your current expenses plus the value of this new loan. One way to do this is to sit down and draw up a detailed budget before meeting with the lender. Determine how much room you have for a new expense in your current budget and stick to that number.Element 2: Credit to Debt RatioOn line with your current income, the bank will need to look at all of your current debts in order to determine whether or not you are too extended with old dues. Basically, this means taking a calculation of your net worth in what is known as the credit to debt ratio. This number will consider the value of all that you own (property, stocks, etc.) and weigh it against what you owe to other lenders.Element 3: Credit ScoreThe final, and perhaps most important element that a bank will review in deciding whether or not to grant you a personal loan will be to look at your credit score. This three digit number is generated based on a number of elements such as credit to debt ratio, history of past debt accounts and others. The purpose of checking credit is to give the bank an idea of the type of borrower you have been in the past. A history of too many late payments or defaults on loans will show the bank that you have not always honored your commitments. This makes you a lending risk and will lead them to hesitate in offering you a loan. Many times, those with bad credit cannot get a personal loan from a bank due to these reasons.There Are Still OptionsIn some cases, banks may offer you a loan despite a bad credit score. However, they will require that the loan they give you is secured. That is, you pledge some sort of property, generally a home, land or vehicle, against the value of the loan in order to provide security to the lender.Even if your income, credit to debt ratio, or credit score is not sufficient to get you a secured personal loan from a bank, there are still options available to you. Lenders who specialize in working with bad credit situations can possibly aid you in your personal loan search. This includes online lenders who will look at the same elements as banks, but with a different lens. Bad credit lenders are more willing to take risks with borrowers and provide them with a chance to reform.