Bad credit borrowers already know that getting approval on a loan is a lot trickier for them that for good credit borrowers. However, it is worth noting that approval is not impossible. In fact, despite the greater risk that exists, some lenders will grant applications for unsecured loans with bad credit.
True, it seems a little too risky for a lender to do so when there is no security provided. But the truth is that granting loan approval with no collateral is fine as long as the applicant has met the necessary criteria. The lender simply restricts the size of the loan, and charges higher interest in compensation for the risk.
In this sense, lenders and borrowers both get what they’re looking for, though not with the ideal conditions. Certainly, for bad credit borrowers, the benefits of getting an unsecured loan are several.
How Unsecured Can Work
The benefits are pretty straightforward in fact. While traditional lenders are reluctant to grant approval on an unsecured loan with bad credit, there are some lenders willing to accept the risk. Most importantly, they are willing to do so at relatively competitive terms.
These lenders are usually found on the Internet, where online lenders offer loan deals to those most likely to be turned down by regular banks and financial institutions. They are also recognized experts in bad credit lending, so getting loan approval with no collateral is very likely anyway.
A better chance of approval is a major plus, but other advantages are a faster loan approval process. This is because the process for unsecured loans usually means there is no credit check up. Also, with nothing put up as security, the borrower loses nothing should he default on the loan.
Qualifying for Collateral-Free Loans
Anyone can apply for an unsecured loan, but when applying for an unsecured loan with bad credit, there are certain criteria that lenders insist are met. Of course, the basic ones relating to age (over 18), citizenship (US citizen or legal long-term resident) and employment (full-time gainful employment) are to be expected, but there are other matters too.
For example, having a source of income is fine, but applicants will need to have held the full-time position for at least 6 months prior to the application date. Getting loan approval with no collateral is tricky unless the lender feels confident the repayments will be made without fail.
Another condition is that the applicant has a bank account, and that repayments on the unsecured loan are withdrawn from that account directly every month. This arrangement reduces the chances of defaulting dramatically, thus making approval more likely.
Improving the Approval Chances
Several measures can be taken to greatly improve the chances of getting the green light. For anyone seeking an unsecured loan with bad credit, these also mean lower repayments and more affordable loan terms.
Using a cosigner is one way around the security problem. A cosigner promises to make monthly repayments if the borrower is unable to. This drastically reduces the degree of risk the lender faces, so the interest rate is lower. Technically, this is still approval with no collateral, but it is also security of a type.
The only conditions relating to the cosigner is that he has an excellent credit record and large enough income to cover the unsecured loan repayments, if that becomes necessary.