A majority of lenders have capped their loans to a minimum and a maximum amount you can apply for. Typically, you are in control of how much you need from financing depending on the purpose of the loan. However, it turns out that most of the personal loans out there regulate the maximum and minimum loan amount you will part with. A maximum amount is therefore explained as the net most amounts of money a client is allowed to borrow from a lending company. On the other hand, the minimum amount is described as the least amount of money a lender authorizes a client to apply for. In personal loans, maximum caps are often used for credit cards, standard, and line of credit loans. As we look at each of them, keep in mind that it is vital to work with a Licensed Money Lender at all times.
Application of maximum loan amounts
A maximum amount on a loan for a borrower is reached through underwriting process. Where the underwriters consider; the credit rating, your credit history, your debt to income ratio and your security if available. From these factors, they are able to know how much money when advanced to you can be repaid without any issues. This is how they then make your credit profile with a recommended maximum amount you qualify for. This, therefore, means that a maximum amount on your loan strictly depends on you and not the lending company. And, it is varied from one lender to another based on different underwriting techniques.
Maximum amounts with secured and unsecured financing
Unsecured loans (credit cards and lines of credit loans)
Credit cards; when you apply for a credit card, the loan underwriters go through your credit information to ascertain the limit applicable to your card. Usually, they check your credit history including the number of cards you currently hold. A long history with the lenders is an added advantage since it implies that you are responsible when it comes to your financial obligations. And also, may credit cards would mean that you have sufficient income to repay all their deposits without infringement on your comfortable way of life. This is only a good sign if your card balances are not almost hitting the maximum limit. That would mean you don’t have a regular income and therefore you live on credit. Apart from this situation lowering your maximum amount applicable, it also damages your credit rating.
Additionally, the lender also seeks to derive more information from your credit index and how many inquiries have been made by lenders. A poor rating will definitely be equal to a lower limit. Having many lenders pulling out a hard inquiry on your scores means you are trying out many finances translating to a hard-financial situation. Hence the lender will know better than to approve a higher amount. Meanwhile, the underwriters also check for judicial sermons over debts, bankruptcy applications, collections or tax liens on your account. Any of these factors would prove to be detrimental to your credit profile.
Lines of credit; here, you are allowed to take out financing but a higher amount would require you to have an impeccable credit score. This would lead to having lower rates of interest hence a lower annual percentage rate.
Secured loans (mortgages, home equity line of credit and government loans)
Mortgage; usually, lenders set the loan amount for a mortgage based on the housing expense to income ratio. Housing expenses include the loan principal, insurance against hazards, asset taxes, mortgage insurance and the fees for the association. The total of these expenses is then compared to your pretax income top come up with a suitable ratio the underwriters can work with. Also, to add to the expense ratio, lenders often use the loan to value ratio in amount evaluation. A majority of the industry players would approve 70% worth of loans to the value of the home. Factors such as collateral have a play in this but mostly the collateral used is the owner’s home equity.
Home equity line of credit; here, the amount you can qualify for hangs upon the equity you have in your home. Therefore, a home equity line of credit can be taken as a second mortgage on your home.
Government loans; these loans offer compromise on certain types of loans. For instance, they would accept a lower ratio and credit ratings. They also give loans at considerably lower rates of interest.
Minimum amounts of loan
As already established, most lenders have minimum loan amounts that are applicable to the borrower. And, these amounts further vary from a lender to the next. Due to this dynamic nature, you are advised to always shop around to discover lenders who would allow you to apply for financing which suits your needs. There are benefits that would accrue if you borrowed while keeping your amounts on the low. They include; being able to make comfortable monthly repayments, having your loan easily approved because it is low-risk financing, lesser interest is charged on your loan, etc.
Furthermore, there are instances when you shop for flexible loan amounts and can’t find any. In this scenario, you need to read the terms of the loan to know if there are provisions for penalties for early loan repayment. If there are no such provisions, then you can take out the loan and repay it back [part of it with the extra cash. For instance, say you only needed $2,000 but the minimum loanable amount is $5,000, then you can take the full amount then deduct the $2,000 you need and repay back the extra $3,000 to the lender. This would leave you to grapple with lesser interests than the initially intended. However, if there are prepayment penalties, you might want to work out which way best works for you to ensure the least of rates translating to an economical monthly deposit.
Minimum and maximum loan amounts are usually subjected to the borrowers by lenders to regulate their borrowing as well as mitigate the risks that are involved in the lending business. That is why a high-risk borrower will have a lower amount of loanable than those who have a low-risk factor on them.