Though it is possible to obtain an unsecured loan with bad credit, there are further questions that anyone who wants to do so should ask.
There are many reasons why someone would want to apply for an unsecured loan rather than a secured loan. Yet, there are some reasons why an applicant can’t apply for a secured loan, the most common ones being the lack of assets to be used as collateral and the lack of available equity on the assets that could otherwise be used as collateral.
How Does Bad Credit Affect Unsecured Loan Approval?
The problem with unsecured loans and bad credit is the fact that bad credit only adds risk to an already risky financial transaction. Since unsecured loans do not have any asset backing up the loan repayment, the risk of default scares lenders away even more. Bad credit, thus, will only turn odds against the applicant in terms of approval and even if approval is possible the loan terms won’t be too advantageous.
It all depends on your credit score and history. If you have less than average credit score due to late payments or a missed payment it is still possible to obtain an unsecured loan without difficulties. However, if you have had a past bankruptcy or defaults on your credit history, you’ll have more difficulties during the qualification and approval process and you may not be approved at all for an unsecured loan.
What Kind Of Unsecured Loan Can I Obtain With Bad Credit
There are certain unsecured loans that almost anyone with bad credit can obtain. These loans are cash advance loans or payday loans and are not based on credit but on income. They provide small loan amounts, charge high interest rates and offer short repayment programs. They are meant for emergencies and only that should they be used for if you want to avoid debt problems.
Other unsecured loans may be obtained with bad credit but you’ll be limited as to the loan amount you’ll be able to obtain and the repayment program that you’ll be able to get. It will all depend on your credit score and repayment capacity. A good income (you can show proof of) will aid you greatly on the process of obtaining an unsecured personal loan.
How Can I Boost My Approval Chances And Get Better Loan Terms
The best way to improve your chances of getting approved for an unsecured loan is to improve your credit score. This implies paying all your bills on time and avoiding late payments and missed payments. With time, your judicious payments will get recorded into your credit report improving your credit score and history. And you’ll be able to apply for an unsecured loan without difficulties.
However, there is not always time to do this and thus, another solution must be found. If you can’t apply for a secured loan that is easier to qualify for, the solution is to apply for an unsecured loan with the aid of a co-signer. The co-signer must have good credit and will also be obliged to repay the loan in case you fail to meet the monthly payments.