FUSA Defining Your Personal Inflation Rate
Understanding what a personal inflation rate is, is quite simple really. Banks, lenders, and brokers alike use your personal inflation rate as a guideline when considering your loans. There are other factors as well that come into the consideration, however inflation is one of them. Every single consumer and the borrower on this planet has their own unique personal inflation rate, and it is wise for you to understand what yours is and how it affects your chances of being approved for personal financing.
Your personal inflation rate is not the largest factor for whether or not you get approved. Your PIR is just another factor in the equation when it comes to your loan application being approved. Don’t think that your personal inflation rate is the biggest factor for the banks when you are trying to get a loan of any kind. Lenders just need to know how much money you need to spend each month on items such as utilities, rent, other debt and general living expenses. It is just the way for the banks to judge whether or not your expenses are going to grow on a monthly basis and in the future. They take into account your monthly payments and your financial responsibilities everywhere else except the loan you are presently applying for. They also consider your income and the chances for the income to grow as well through raises and bonuses.
Compared to your current spending pattern, your future personal financial spending plans or situation will be different if you consider all of the factors that come into play on a monthly, weekly, or yearly term looking forward in time. Loan officers and lenders want to have a simplified idea of where you are going down the road. While few people can really understand what expenses and difficulties may present themselves in the future, lenders are always trying to make sure that you will continue to have a cash flow that enables their clients to repay all of their debt as per the agreements that they have signed.
They can see that if you have a dozen children that you will be expected to either earn more or spend less. Of course if you have 12 children you will be certainly spending more money in the future and this is one example of what we call a personal inflation rate – the guesstimate of all of the new costs you will incurred or going forward as your children in this case will cost you. Whether you have one child or 12 children, the cost to look after them will only increase over time as them mature and require more food, clothing and education.
What Does It Cost to Raise a Child?
I believe the numbers that I have heard in the past for what it cost to raise a child from birth to 18 years of age is approximately $300,000. I remember this number as being $150,000 (well at least that is what my wife remembers it to be) but of course times have changed and the spoiled little brats are costing as a hell of a lot more money (just kidding). Even due to inflation which happens every year, the costs to raise our children are increasing.
As you can well imagine the personal inflation rate for somebody who is older and retired and has no children is much less. Like I have mentioned on other places on the Web, this does not mean a person with a personal inflation rate that is low is guaranteed to get approval for a personal loan. So many other factors weigh into the banks calculations.
Other Factors that Lenders Consider in Addition to Inflation
Your credit score is still number one factor which reflects your past history of making payments and meeting your financial commitments. If you have a very high FICO score the banks may not even consider your personal inflation rate, so you don’t have to worry about it. If however, you have a weak credit rating in the range of 600-620 FICO odds are the banks will look very closely at your personal inflation rate and other factors. If your credit rating is that bad your odds of getting approved are almost nil from one of the major banks. Private lenders may be willing to take a chance on making a bad credit rating loan to you, however the interest rates will be much higher.
In addition the lenders need to understand the type of job you have, how long you have been at this job and how you are paid. They would generally like people to have been at their present employer for longer than 6 months and they would like for applicants to be paid by electronic funds transfer rather than by cash or by check. They may want to see a copy of your pay stub which will show the name of the employer as well as what your gross and net pay is after taxes and other deductions have been accounted for. They will use these numbers to calculate your debt to income ratio to confirm your ability to meet all of your present and future commitments taking your personal inflation rate into account.
Another item that lenders like to have is a copy of your bank account statements. This will allow them to confirm your account routing information since they will usually transfer your loan to your bank account electronically and they want to make sure that the money is going to the right account. In addition they will review your statement to assess if you have any checks that have been written for insufficient funds. This can be a red flag for many lenders since it says that at the very least you are not good at managing cash flow and it may indicate more significant financial problems which might just deter them from lending any money to you.
Lenders will also want to withdraw payments from your account electronically so providing a copy of your bank account statement serves many purposes. In addition it also confirms your current address which is something they also look for. Some lenders will want their clients to have maintained the same address for at least 6 months as well to show some stability.
All of these factors in addition to your personal inflation rate are taken into account before approving a loan to a customer with or without a good credit rating. This is just part of doing normal business for lenders and clients should not be surprised when they are asked to provide this type of information.