December 1, 2011
Although the financial collapse of late 2007 prompted many banks in the UK to significantly reduce the availability of credit to private and commercial customers, the popularity of personal loans has never weakened.
Whilst obtaining credit is considerably more difficult today than it was four or five years ago, many people in the UK continue to rely on loans, credit cards and mortgages.
Considering that applications for personal loans are scrutinised very carefully by lenders, indeed, the majority of applications are rejected after credit scoring, it is perhaps worth examining the most popular reasons cited for loan applications.
Detailed statistics pertaining to personal loans are difficult to obtain, let alone accurately analyse in order to establish a correlation between the reasons cited by applicants and the number of applications accepted or rejected by lenders.
Borrowers do tend to request loans for similar reasons, however, but statistics can be misleading. It is arguably the case that many applicants simply pick the reasons that they feel will most benefit their applications for credit.
Consolidating existing debts, for example, may be one of the most popular actual reasons for applying for a loan, but many applicants would prefer to cite other reasons in the hope of increasing their chances of approval.
Although there is anecdotal evidence and sound logic to suggest that lenders do not particularly rate applicants who indirectly confess to being unable to effectively manage their existing debts, the issue is by no means conclusive.
Of course, it is important that loan applications are completed with great honesty and accuracy. Aside from constituting fraud in most cases, misleading lenders can only serve to hurt loan applicants in the long-term.
One of the most common cited reasons for a loan is to purchase a new car. However, other forms of credit are available to buyers, including hire purchase, finance deals and credit cards.
All options must be weighed carefully by the buyer, who may be aiming to spend more than £15,000 on the vehicle, but a personal loan is very often the most financially viable solution.
Not only is the search for a personal loan likely to encounter relatively low rates of interest from the leading lenders (assuming the applicant has a healthy credit rating), but the dealer may also be able to offer discounts on cash purchases.
Another popular reason for borrowing money is to make improvements around the home. Applicants who own their homes tend to cite this reason if they intend to make improvements that might add to the value of a property.
Building an extension, repairing an exterior wall or installing solar panels on the roof are just some of the most justifiable reasons for requesting a personal loan.
Some people believe that a personal loan is useful for starting a business, but many lenders have discrete mechanisms in place to handle business-related applications. Generally speaking, personal loans should not be sought for business-related expenses.
Other applicants cite moving home or going on holiday as reasons for requesting money, whilst some intend to use the cash for educational or investment purposes.
Whatever the genuine reason for a loan application, whether it is to swim clear of troubled financial waters or buy a new speedboat, the applicant must be honest at all times. The applicant should also bear in mind that the lender will expect the reason cited for a loan to reflect the sum or value of the funds requested.