Personal Loans and Borrowing Limitations

Personal Loans and Borrowing Limitations
  • Opening Intro -

    A personal loan can be used for a variety of reasons and can be obtained through many banks and credit unions. Most lenders have a minimum amount that they will lend with a maximum amount in place too.


Your chances of obtaining a loan toward the higher end of a bank’s borrowing limits can depend on a few things including your credit rating and your ability to repay the loan.

Skin in the Game

Two types of personal loans are available: secured and unsecured loans. A secured loan is backed by collateral, while an unsecured loan is not. Thus, a lender may prefer that you have some skin in the game by offering collateral such as an asset to back the loan. If you default, the asset reverts to the lender — reducing the bank’s risk — but also making it more likely you will be offered a loan.

Loan Terms

Expect that your personal loan interest rate to come in lower if you have a secured loan. Otherwise, your unsecured loan will cost more than most any other loan option. Your creditworthiness will play no small part in determining your loan rate with consumers possessing excellent credit receiving better terms than others. Credit ratings in the 700s and above put you in prime lending territory.

What You Earn

Your personal income is a factor for securing a personal loan. That money usually comes from employment, but can also include other steady sources of income including a retirement fund, structured settlement or government assistance. Lenders will look at your debt too in an effort to determine your debt-to-income ratio. The better your ratio, the more likely you will get approved for a loan.

Loan Difficulties

You may have in your mind to borrow $12,000 with an eye toward paying off medical bills, providing for your child’s education or for some other personal use. Your banker, however, may not be willing to extend a loan in the amount, and could turn down your application. A rejected application, however, does not mean that you cannot borrow money. Instead, you might consider asking for a smaller amount, such as $8,000. Ask your banker for the reason why your loan request was turned down too — it could be that you need to handle some other debt first or close out an open account.

Financial Considerations

If your banker remains hesitant in approving your loan, you can apply elsewhere. As long as such applications are made within 30 days of the initial one, your credit rating will not suffer. Or, if you already have a credit card and would like to borrow money from that card, you can exercise the cash advance option. That option will cost you both in fees and a very high interest rate, with both possibly a matter of negotiation with your credit card issuer.


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Categories: Loans

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".