FinanceTeam

Why is income important with Personal Loans?

When you apply for a personal loan, one of the first things the company will ask, after the amount you want to borrow of course, is detail on your level of income. By this they mean the amount of money you receive on a regular basis such as earnings, pensions and money from other sources. They use this information to assess the likelihood that you will be able to afford the repayments on the loan you are asking for. When a company lends you money, of course they want to earn some interest for their trouble, but they also want to be sure they will reliably receive that money from you. They call it assessing risk. That's why you will see all kinds of interest rates quoted for personal loans of a similar amount. Usually, the lower the risk of repayment defaults, the lower rate of interest a firm will offer.

What counts as income for a personal loan?

When a loan company asks about your income, they typically mean your regular weekly or monthly pay or salary. There are other types of income they will take into account such as overtime payments, some bonuses, pensions, disability living allowance, long term housing allowance, child tax credit, working tax credit (if not already part of your salary and some other less common benefits. The loan company uses your income information to assess the amount of money they are happy to lend to you - they don't want you to overstretch yourself in terms of your ability to meet the monthly personal loan repayments.