Just because traditional lenders like to highlight the risk involved in lending to bad credit borrowers, applicants should not be deterred from trying. There are loan options available, and some more accessible than others. Getting a small unsecured personal loan with bad credit is not always a big problem.
What we mean by small is that the loans are no more that $2,500. The commitment, therefore, is not huge, and certain lenders prefer to look at the practicality of meeting repayments rather than the strict lending policy that blankets applications. This is why loan approval without security is possible for bad credit borrowers.
Still, there is no such thing as free money, and anyone taking out an unsecured personal loan is obliged to repay it. The thing is that, with these loans so accessible, there are some serious compromises to make too.
Why These Loans Are Available
There are a host of economic factors that go into a lending policy, so it may seem strange that any lender would be willing to lend money to what are considered high-risk borrowers. However, granting approval to applicants seeking unsecured personal loans with bad credit is dependent on them satisfying special terms.
Otherwise known as payday or cash advance loans, the basis of approval is not the credit history of the applicant, but the size of their monthly paycheck. This is because payment in full is usually made in one go directly from an upcoming paycheck. Granting loan approval without security is therefore not a problem.
As long as the applicant has a large enough income, approval of the unsecured personal loan will be granted. In this regard, securing the funds needed is almost guaranteed.
Terms to Consider
So, what exactly is the drawback to a loan that can be approved so quickly and so assuredly. Well, while getting an unsecured personal loan with bad credit is likely to come with a high interest rate, the rates charged on payday loans are extremely high – as much a 30%.
What is more, the repayment term is between 14 and 30 days, though a special deal to extend the term to 90 days is sometimes possible. This means that repaying the loan is often a high-pressure task, leaving no room for any miscalculations.
These terms also mean that, while loan approval without security is a reason to celebrate, the result can be detrimental to efforts to deal with existing monthly outgoings. Take a $3,000 monthly paycheck. The repayment on a $2,000 unsecured personal loan could be $2,600, leaving just $400 to meet normal expenditure.
Typical Criteria to Meet
Qualifying for a payday loan is not difficult at all. All a lender wants to know is that the income is large enough to cover the repayments. Anyone seeking unsecured personal loans with bad credit can be confident of getting the funds they need, so long as it is between $100 and $2,500.
There is also no interest shown in credit histories, with a no credit check usually applying to the approval process. What is checked is the employment status and income of the applicant.
The result is that loan approval without security can be granted within minutes of the application being submitted. And because bank account details are required as standard, funds can be deposited within a few hours.
It also means that payment of the loan is withdrawn directly from your bank account, so there is no possibility of defaulting. However, getting the unsecured personal loan funds when most needed, makes such arrangements worthwhile.