The economic crisis that struck in 2008 has changed a lot of things for consumers seeking loans. Where once lenders had confidence in lending to bad credit borrowers, today they are much more cautious. This is especially true when applicants are seeking large loans with no security, like a $25,000 unsecured personal loan.
The key issue with granting loan approval without security is that the lender accepts the risk without compensation, so stands to make a considerable loss. This makes lenders quite nervous, prompting stricter criteria to be applied. This, in turn, increases the cost of the loan deal.
But the good news is that, while some compromises do have to be accepted, unsecured personal loans can be approved. By taking some measures before submitting the application, to build the strength of the application and lender confidence, the chances of success are improved.
The Problem With No Collateral
Collateral is what gives a loan security, and its role in getting large loans cannot be underestimated. A $25,000 unsecured personal loan is a much more attractive prospect when a lender knows they can at least get the principal back. So, unsecured loans are more difficult to get approved.
Simply put, collateral provides a source of compensation for lenders if the borrower defaults on the loan. So, providing some item of value as collateral can have a positive effect on the application, lowering the interest rate charged on the loan. Getting approval without security is harder.
The only problem with collateral is that the item provided must match the value of the loan. So with an unsecured personal loan that is worth $25,000, an item worth $25,000 needs to be provided, which can be difficult to find.
The Advantage of Getting a Cosigner
When $25,000 collateral is too hard to source, the best alternative is to get a cosigner. In fact, as far as many lenders are concerned, a cosigner is a far better option, especially for a $25,000 unsecured personal loan.
The reason is that an item of collateral (jewelry, car etc) has to be converted into cash, but a cosigner simply makes the expected monthly payment when the borrower is unable to. This is the ideal situation, since it saves the effort of selling seized collateral, so is the best option when seeking approval without security.
However, a cosigner needs to be found by the applicant, and then approved by the lender. Usually a family member is chosen, but he or she must have an excellent credit rating and a sufficient income to make the repayments of a large unsecured personal loan. Otherwise, they may be rejected.
Check Your Credit Score
Putting together a successful application is helped greatly when the credit score is known and improved. The chances of getting a $25,000 unsecured personal loan are lower when the score is lower, but are greatly improved when the score is improved.
Setting about improving credit scores takes some time, but it is not hard to do. A consolidation loan, for example, can be taken out to clear existing debts completely, and lower the overall monthly outgoings.
This makes loan approval without security easier since more funds are available to make repayments with and interest rates fall as a result of the higher score. And as is the case when applying for unsecured personal loans, having a better debt-to-income ratio makes all the difference to the application.