Bad credit scores are frustrating factors for applicants, especially when trying to secure a large loan. Lenders feel unsure about approval, with fears the poor credit record is a sign of a default on the horizon. Thankfully, there are large loans available, like a $25,000 unsecured loan, for bad credit borrowers.
It might seem strange that such financing could get the green light, but getting loan approval does not rest on a credit score. There are more significant factors, and more important boxes to tick. Knowing that an applicant has the excess income to meet repayments is of far greater interest to lenders.
Of course, loan approvals are never guaranteed, and it is only logical that large unsecured loans still provide a certain risk for lenders. Therefore, the terms are not ideal and bad credit borrowers have to accept compromises.
The Truth About Credit Scores
Credit scores have only ever been used as a guide by lenders. The reason is a variety of events can contribute to the score, and often outside factors are to blame rather than poor money management. Loan purpose can override any credit history, which is a key reason why a $25,000 unsecured loan for bad credit borrowers exists.
The only influence a low credit score has is to dictate the interest rate to be charged. Low scores (300-450) mean very high interest rates; middle scores (451-650) mean above average rates; while good scores (651-800) mean low or very low rates.
Getting loan approval is helped greatly when the scores are high, as a low rate lowers the monthly repayments, making the debt more affordable. And when it comes to a large unsecured loan, a low score can make a big difference; alternatively, a low score can make a loan deal too expensive.
The Loan Term is Key
For bad credit borrowers, of course, keeping the interest rate low is very difficult. However, there is a highly effective way to improve the affordability of the loan. By agreeing a long loan term, the loan principal is divided into more individual payments, thus keeping the monthly repayments low. So, even a $25,000 unsecured loan, for bad credit borrowers especially, becomes more manageable.
Remember that the key part of getting loan approval is always affordability. If repayments can be made without a hitch, then there is little reason for the application to fail. The size of an income is not enough, there must be sufficient excess income to cover the payments - and a long term effectively ensures this.
For example, a $25,000 repaid over 3 years requires monthly payments of around $715, but over 10 years, the same loan would cost only around $215 each month. Extending the loan term on a large unsecured loan makes approval extremely likely, if other criteria are in order too.
Consider the Choice of Lender
It is unwise to underestimate the lender in favor of loan terms, since it is the lender that sets the terms. When it comes to $25,000 unsecured loans, for bad credit applicants to stand a chance of getting the green light, finding excellent terms is the primary concern but the right lender should be open to some negotiation.
To this extent, going to your local bank is a idea, even though they are famed for their high interest rates. But if your relationship is good, then it may be possible to get a good deal.
Online lenders are less accessible in that sense, but offer lower interest rates and greater flexibility. And since they are recognized experts in bad credit lending, they also represent the best chance of getting loan approval when bad credit is an issue. Still, be sure to read the small print to check for hidden charges, especially with large unsecured loans.