Personal loans
- It would seem that unsecured loans are hard enough to get approval
on, without having to worry about the influence that a low credit rating
has. But, in fact, the combination is not something that is shunned by
lenders completely. There are ways to get your hands on an unsecured
personal loan with bad credit. It really just comes down to meeting a
short list of criteria and being sensible about what is applied for.
Personal loans - In truth, lenders are cautious about bad credit
ratings, and the reasons why an applicant might have one. So, when it
comes to personal loan approval without security, their attitude is a
little like being on red alert. By calming their concerns, they will
feel happier about approving the application.
However, in getting unsecured loans approved with bad credit there are
some compromises necessary. Interest rates may be high, terms not ideal
and loan limit low, but competitive terms can be secured if the right
lender is approached.
Why Unsecured Loans?
It might seem strange that unsecured personal loans with poor credit are
given the green light at all. Secured loans are more likely to be
approved because of the inclusion of collateral. Collateral is an item
of value offered in compensation to the lender should the borrower
default on the loan.
But statistically applicants are unlikely to have items of sufficient
value to offer as security. That is why often it is the item that is
purchased via the loan that becomes the security, like the car in an
auto loan or the house in a home loan. For personal loan approval
without security, however, there is no set purchase identified so the
lender is taking something of a leap of faith.
The only grounds the lender can issue approval on is income, with the
credit rating only an indication of their history rather than their
ability now to pay. So, it is possible to get unsecured loans approved
with bad credit if the math adds up.
Importance of Income
The significance of income is extremely high in the case of unsecured
personal loans with poor credit. But more than just the figure of the
monthly salary is used in the calculation.
For example, an applicant with an income of $5,000 might seem to be a
safe bet. But if there are existing loans to repay, and the typical
monthly outlay on utility bills and living expenses are high, then
personal loan approval without security is unlikely.
This is because of the debt-to-income ratio, which indicates the
percentage of available income. Lenders require a cushion of around 20%
to allow for unforeseen expenses, and so a 40:60 ratio is the accepted
limit. Unsecured loans approved with poor credit need to fit within that
ratio.
Realistic Loan Applications
To get approval on unsecured personal loans with bad credit, it is
important to consider what is acceptable to the lender. Looking for
$100,000 with no collateral, no identifiable purpose to the loan and a
low credit rating, is almost certain to end in disappointment.
A loan of perhaps around $3,000 is certainly more reasonable, so
personal loan approval, without security, is possible. This is due to
two reasons: firstly, the lender knows that the repayments are
manageable, and secondly, the lender can see the applicant has a mature
attitude.
The fact is that unsecured loans approved with poor credit is a golden
opportunity to improve credit ratings, and if a lender knows the
applicant sees it as this, they will be much more comfortable about
giving the thumbs up.