Short Term Loan Eligibility How the Rate of Interest can Ruin your Approval

Created: 2017-08-04 00:00:00

Short Term Loan Eligibility How the Rate of Interest can Ruin your Approval

Let us consider two lenders of short term loans. Both are willing to offer the same loan amount for the same term. Lender A is willing to offer L at R to be repaid over T. Lender B is willing to offer L at I percent to be repaid over T. For purpose of specificity, R is 5 percent more than I. It is true that you wouldn't go for Lender A in the first place but what if you are not aware of Lender B or any better offer out there. Not only would you end up with a loan charging you a higher rate of interest but you can actually get turned down for the loan. The higher rate of interest may ruin your approval.

A 5 percent increase in rate of interest will lead to a similarly proportionate increase in your installment. If the monthly installment doesn't fall within the disposable income, then your loan application can get rejected. This is not to say your loan application will be definitely rejected but there is a possibility. The rate of interest is hence not only a qualifying criterion from the perspective of choosing a loan but it also influences whether or not someone would actually get approved for the chosen loan.

When one takes the monthly income, deducts all necessary expenses and gets down to the small disposable income, especially in case of borrowers with moderate income and bad credit history, the room for expenses is not much. A few quid here and there can be a huge difference. If the difference ends up being a hundred quid or more, then the lender will mitigate its risks and reject the application. It is in the interest of saving money and also qualifying for a role that you should extensive research interest rates.

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk