Short-term loans are superb financial tools. They will provide ready cash to suit your immediate needs. But are you eligible? Well, the following blog will tell you how you can check for eligibility criteria for short term loans.
What Are Quick Loans?
The length of a short-term loan is generally one year or less. In contrast to home loans and other long-term loans. Such loans are used to meet unexpected expenditures. For example, medical bills or car repairs.
Fundamental eligibility criteria
Basic qualifying requirements apply for the sanction of a short term loan. Though each lender will have different policies, most of them have certain common ones.
Age Requirement
Firstly, you must be old enough. Here, “18 or older” means you. In some areas, you have to be 21 years old.
Need for a Stable Source of Income
Secondly, you have to have a stable source of income. This means that you will repay your loan. It could be through employment retirement pension or any other recurrent income. The lending party will always request proof of income. This could be your payslip or bank statement.
Identification
You will be required to show identification. This is proof of your person. A driver’s license or a passport generally does the trick. Sometimes, a utility bill with your name on it is also required.
Bank Account
You need a bank account. This is where lenders remit the loan amount. It is also used for repayments.
Credit Score
Credit score plays a huge role in loan eligibility. A good credit score tells that you pay off loans regularly. But what if your credit rating is bad? Can you still get a short term loan? The answer is yes. Some lenders offer short term loans for bad credit. However, interest rates might be higher.
Getting a better credit score
Even if your credit is bad, you can easily fix it. Here are the following tips:
- Pay your debts on time.
- Reduce debt.
- Look for errors in the credit report.
Your Employment Status
Your employment status matters as well. Lenders want you to have a stable job. What happens in case if you are self-employed or a freelancer? This doesn’t mean you can’t borrow at all. You only need to come up with proof of regular income.
Residency
Most will want you to be living in the country that you are applying in and will require proof of some sort excluding other requirements, this proof may be in terms of a utility bill or possibly even a rental agreement.
Purpose of the Loan
Sometimes they would want to know why you are borrowing money or how one plans to spend it. Although this is frequently the case with large loans, occasionally it may also be the case with short term loans.
Debt to-Income Ratio
The debt-to-income ratio—that is, the degree of your obligation relative to your income—is another figure the loan specialists look at. A low ratio suggests sufficient revenue to cover the debt.
computing the debt-to-income ratio
Your ratio can be computed in three steps:
- Add up all your monthly debt payments.
- Divide this by your monthly income.
- Multiply by 100 to get a percentage.
Guarantors
Lenders may also call for a guarantor occasionally. He is the one who promises to pay back a loan should the debtor find himself unable. Having a guarantor increases one’s chances of loan acceptance in situations when a lender calls for one.
Alternative Options
But if you fail to qualify, then do not worry. There are other options that will be open for you, including:
Borrowing from friends and family
- Using your savings
- Considering a credit union
- How to Prepare to Apply
Before applying for a short term loan, there is a great need to prepare. Here are steps that can guide you on how to do it:
Gather Documents
Gather all the documents required. They include:
- Proof of income
- Identification
- Bank statements
- Proof of residency
Check Your Credit Score
Know your credit score before applying. This will help you understand the chance of approval. Most of the online services give you a free credit report.
Compare Lenders
Different lenders have different requirements. Compare them and find out which lender suits you the most. Understand the interest rates, repayment terms, and eligibility criteria.
Read Reviews
Read the reviews of the lenders. It will give you an idea of their reputability. It helps to avoid scams also.
Understand Terms
Carefully read the terms of your loan. Be certain to understand the interest and how much you are going to pay every month. Question whatever is not clear to you.
Plan Your Repayment
Have some plan for the repayment of a loan. Know how much you need to pay every month. See that it is within your reach of affordable repayment without missing other payments.
Conclusion
It will, in very many ways, help by knowing whether you are eligible to secure a short-term loan. You will understand your ability to get the required loan. Remember that different lenders may use different criteria to determine who is eligible or otherwise for the required amount of money in the loan. Compare options and go for the best. By proper planning and strategising, one can work on increasing the chances of approval.