Personal Installment Loans: Things That Affect How Much You Can Get
Posted on: 11 July 2023
Unexpected expenses can put a dent in your savings, and payday may seem too far away. Personal installment loans are a good way to borrow money, especially if you need it for a significant expense. With installment loans, you get a lump sum of money paid monthly.
But the amount of money you can borrow depends on several factors. Discover three things that affect how much you can get from personal installment loans.
Credit Score
Your credit score reflects your creditworthiness and how much risk lenders are willing to take when they lend you money. A good credit score shows you're a responsible borrower who pays their bills on time and in full. You are more likely to get approved for higher loan amounts if your credit score is higher.
On the other hand, if you have a lower credit score, lenders may be hesitant to approve your loan application or only approve you for a smaller loan amount. While this is rather unfortunate, lenders need to assess the level of risk associated with lending you money. After all, they need to protect their interest as much as you.
Debt-to-Income Ratio
Debt-to-income (DTI) ratio is a calculation of your monthly debt payments divided by your monthly income. Lenders use this ratio to assess whether you have enough income to pay off additional debt and if you pose a higher risk of defaulting on the loan. So even if your credit score is high, lenders may limit the amount of money you can get based on your DTI ratio.
Generally, lenders prefer a low DTI ratio. However, some lenders may be willing to lend to borrowers with higher DTI ratios, but only at a lower amount. They may also charge higher interest rates to further offset the risk.
Loan Term
The loan term refers to the time you have to pay off the loan. The longer the term, the lower your monthly payments, but you'll end up paying more in interest overall. Lenders typically charge interest on the entire loan amount for the whole duration of the term. Therefore, the shorter the loan term, the lower your total interest payments.
When you apply for personal installment loans, most lenders will provide you with several loan terms to choose from. Depending on your financial situation, you may be able to get a higher loan amount if you select a longer loan term.
However, the shorter your loan term, the more you'll be able to save on interest. So consider your financial situation carefully before deciding which loan term works best for you.
Personal installment loans can help you get the money you need for unexpected expenses or planned expenses, like home improvements. However, before you apply for a loan, make sure you know how much you can afford to repay each month and the total loan cost. With the right loan, you can get the financial support you need without compromising your financial security.
Share