Generally speaking, there is an expectation that a lack of collateral means the chances of getting a large loan approved is poor. This is especially true for bad credit applicants, whose history of meeting their repayment obligations is less than ideal. But getting unsecured personal loans, even large ones, is not something that should be ruled out.
There is almost always a way to convince lenders to approve a loan, with the only real issues deciding applications relating to the ability to make repayments and the likelihood of a trouble-free loan term. Besides, for bad credit borrowers, securing approval with no collateral can sometimes be a necessity.
What really matters when applying for an unsecured personal loan with bad credit is that the current financial situation indicates something positive, and that the problems that caused the credit score of the applicant to fall have been dealt with.
The Real Significance Of Collateral
It is tempting to believe that collateral is always easy to find, but in truth, it can be difficult for applicants to find suitable possessions for the job. There are obvious advantages if they can, with the terms of loan deals improved - mainly through lower interest rates - and loan approval practically assured. When it comes to unsecured personal loans the situation is different.
The first issue is the size of the loans available on which the applicant can realistically hope to gain approval with no collateral. Most lenders have a limit of $10,000 applied to their unsecured loans, borrowed, though the applicant still needs to have a good credit history. Bad credit borrowers are limited to around $5,000.
Also, the lack of collateral means that the interest charged will be quite high, especially for those applying for an unsecured personal loan with bad credit. The exact interest rate and loan size can vary between lenders.
Why No Collateral Deals Can Be Offered
Lenders accept the risks involved in any unsecured loan deal, but lenders are careful about their assessments, so granting an unsecured personal loan is not as foolish a leap of faith as it might seem.
The figures never lie, and once it is shown that the applicant is able to afford the repayments on a loan, there is little reason for the lender to reject the application. Online lenders who specialize in bad credit lending do what they can to make the loan terms affordable, which is why approval with no collateral is more likely with them.
A key part of making these loans affordable is extending the loan term to ensure the size of the monthly repayments is kept low. This does mean paying more in interest over the lifetime of the loan, but it also makes getting a larger unsecured personal loan with bad credit much more probable.
What To Look For
With online lenders leading the charge in bad credit lending, there is no surprise in being told that they are the best source for unsecured personal loans. But there are terms and conditions to look at carefully before signing any loan contract.
Even with a proven source of income, good job security and affordability confirmed, getting loan approval with no collateral is only a good thing if the terms of the loan itself are good. For example, a payday loan can be accessed quickly, so is useful in emergencies, but it is also small and very expensive.
Taking time to find the right lender means getting the best deal possible. And as tempting as it might be, when seeking an unsecured personal loan with bad credit, to jump at the first deal offered, remember to check the background of the particular lender on the Better Business Bureau website.