The general understanding is that large loans, like a $25,000 unsecured personal loan, are unlikely to be granted when bad credit is part of the equation. But actually, getting even a large loan approved with no collateral and low credit rating, is possible. All lenders ever want is the criteria met and the right boxes ticked.
The fact is that lenders are always willing to lend to applicants because it is their only way of making a profit. So, the task of getting loan approval without security really comes down to convincing the lender that the risks associated with the loan are not that big at all.
This generally means proving an ability to make repayments, as well as the terms being affordable. If these two aspects are confirmed, the chances of getting an unsecured personal loan are very strong.
Why No Collateral is a Problem
The reason why collateral is such a valuable commodity amongst lenders is that it provides a degree of loan security. It lessens the perceived risk of the loan deal. So, it is very useful when a large loan sum is needed. With a $25,000 unsecured personal loan, however, the applicant has to find another way to ease the concerns of the lender.
Collateral is a source of compensation that eases the financial blow for the lender should the borrower default on the loan. And with lower risk, the interest rate charged is lowered too. This in turn makes approval much easier - much easier than getting approval without security.
The only catch is that collateral has to match the loan in terms of its value. This is no problem when seeking a $1,000 loan, with an item of jewelry worth $1,000 offered in security. But for larger sums, like $25,000, finding collateral can be difficult. Sometimes, an unsecured personal loan is the only option open.
Cosigners Are A Key Addition
Lenders really only want to be sure they will get their money back. When a cosigner is added to the application, confidence becomes is sky-high. In fact, getting approval on a $25,000 unsecured personal loan becomes almost a formality.
The reason is that a cosigner is effectively a guarantor, providing an assurance that monthly repayments will be paid, even when the borrower is not able to make them. What this means is that all risk associated with the loan is negated, so getting approval without security is basically assured.
However, a cosigner needs to be accepted by the lender first, and to be so, they must have a sufficient income and an excellent credit rating. This can mean a suitable candidate is a little harder to find. But if found, the unsecured personal loan will get the green light.
Check Your Credit Score
When considering your loan options, it is wise to know what the significance bad credit has in the application. Actually, it has only a minor influence over the approval process, affecting the interest rate charged, so even a $25,000 unsecured personal loan can be approved with a low credit score.
It is important to know your credit status, so get a copy of your credit report from one of the credit agencies that produce them. This can cost a small fee usually, but once a year it is possible to get a free abridged version.
Still, it is the debt-to-income ratio that is more important. At 40:60, a maximum 40% of excess income can be committed to repaying the new loan. The ratio is strictly adhered to by lenders, especially when it comes to granting approval without security. So, to get an unsecured personal loans be within the ratio figure.