One of the best developments for bad credit borrowers in recent years, has been the falling significance of low credit scores. Once a damaging influence when seeking loan approval, now it is possible to get even large unsecured loans with bad credit. Other more significant factors are key to the approval process.
The reason for the falling influence of credit scores is the increase in the number of honest borrowers who have seen their credit scores fall through no fault of their own. Getting approval with bad credit is more likely because lenders recognize a smaller risk associated with this category of borrower.
There is no guarantee of approval when applying for unsecured loans, but by keeping the key factors in order, the chances of getting the green light are increased. But what are the factors that need such careful attention?
Two Key Factors
Lenders need to feel sure a borrower will make repayments without any hitches. That is actually the secret to securing approval. Getting an unsecured loan with bad credit, therefore, is plausible. However, easing lender worries is the trick.
The key factors in the eyes of a lender are the income and the debt-to-income ratio. If an applicant has a reliable income, approval with bad credit is a realistic possibility. After all, an income confirms an ability to make repayments. Self-employed applicants will need to show detailed tax returns, but otherwise paycheck deposits in a bank account is fine.
The debt-to-income ratio is perhaps the most important factor, however, as it confirms what is actually affordable for the applicant. Set at 40:60, the lender considers a maximum of 40% of available income for repaying loans. So the trick is to keep any unsecured loan repayments low enough to ensure total debt obligations do not move above that limit.
How Security Can Make a Difference
Applying for a large unsecured loan with bad credit can require some extra help in the form of security. Technically, this changes the status of the loan to a secured one, but if it is possible to find collateral to the same value as the loan, from which lenders can get compensation should the borrower default, then it can make approval likely.
Of course, it can be difficult to find an item valuable enough, but if it can then the risk associated with the loan is drastically reduced. If no collateral can be found, then securing approval with bad credit may depend on splitting the large sum into 2 or 3 smaller sums.
Another option is to include a cosigner in the application, someone who can guarantee repayments will be made even when the borrower is unable to make them. With a cosigner, the risks in approving an unsecured loan are erased, so the interest rates fall. The only condition is the consigner has an excellent credit history and a sufficient income.
Consider The Loan Provider
Bad credit borrowers have the best options available to them online, even when it comes to seeking a large unsecured loan with bad credit. This is because online lenders are experts in bad credit lending, with lower interest rates that those charged by traditional lenders, and more flexible repayment schedules. Finding the best deals is made easy thanks to the development of comparison sites.
Another possible loan source is a subprime lender. These are known to be more expensive but the chances of securing approval with bad credit are extremely high. The repayments are made affordable by extending the loan term, so a considerable amount of interest is paid over the lifetime of the loan. The confidence in getting unsecured loan approval makes a subprime lender the best option is many cases.