In the last two years, the percentageof unsecured loan takers has increased considerably in the UK loanmarket. Not only the tenants, most homeowners also prefer takingloans without pledging any asset, especially the home, as security tothe lender. The risk of repossession of home plays heavy on the mindsof the borrowers, when they weigh different loan options. Unsecuredloans are masters in luring customers because of the features citedbelow:
Available for a range of different amounts andrepayment terms
Not secured against any asset
No restriction on the purpose of availing loan
Amount available usually ranges from ?500 to'25,000
Loan tenure may stretch from 6 months to 10 years
Different lenders offer different APRs
Most borrowers wonder that if nothing is secured, then on whatbasis the loan amount is calculated for unsecured personal loans.There are many factors that play a vital role in deciding the amountto be granted as . Some of the parameters arelisted below:
Credit History of the borrower-A borrower with few arrears, defaults, and miss payments is morelikely to get a greater amount than the one who has an unhealthycredit record. So, better the credit score of the borrower, higherthe amount granted as unsecured loans
Disposable income of the borrower-By disposable income, one means the approximate income of theborrower left per month after paying all living expenditures,instalments of other loans and credit card payments etc. On thebasis of this, the lender decides how much amount the borrower willbe able to pay as the instalment of the new loan
Debt to income (DTI) ratio-This determines the affordability of the borrower. DTI is calculatedby dividing the monthly income of the borrower by his expenditures.This reveals the paying capacity of the borrower. If the DTI ratiois more than 0.36, the borrower will get a good amount as unsecuredpersonal loans
Credit policies of the lender-Every lender has a different credit policy. So, the loan amount,tenure and the APR charged is subject to the lender's criteria. Forinstance, the high street banks may not at all provide unsecuredpersonal loans to those with bad credit history; whereas,an online lender may approve the loan
There are innumerable factors that help in determining the loanamount of unsecured loans, the major ones being discussed above. Theborrowers' requirements and say also works. In most cases, theborrowers mention the purpose for which they are procuring unsecuredloans in the loan application form. As per the purpose, the lendersgrant unsecured loans.
