Unsecured Personal Loans With Bad Credit: How To Improve Your Approval Chances

Written By Paul Johnson on Friday, May 2, 2014 | 12:46 AM


For loan applicants, meeting the basic loan criteria is not a problem, but it is when lenders are considering the application details that approval or rejection is decided. It is at this stage that borrowers seeking unsecured personal loans with bad credit are likely to see their efforts fail.

Many people think that low credit scores are the banana skin, but that is not actually the case. In fact, a major reason for application rejection is that the borrower has not applied for the right loan. So, improving loan approval chances can come down to selecting the right loan available.

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There are several options open to people seeking unsecured personal loans, even when they have bad credit histories and mounting debts. It is important to examine these options, and talking to a loan officer at your local bank can help. Here are three of the most common variations available.

1. The Personal Loan Option

Normally, this is the first option that people take because it is the most understood and most common. But when seeking unsecured personal loans with bad credit, there are some positives and negatives to keep in mind. Not least is the fact that the status of unsecured can create problems.

An unsecured loan is one that is applied for without any collateral offered as security to the lender. Collateral gives lenders a source of compensation should the borrower default on the loan, so the risk factor is reduced. Without it, the interest rates are higher to cover the perceived risk lenders accept in granting the loan.

When it comes to improving loan approval chances, it is not a bad idea to provide some collateral. But when that is not possible accepting the higher interest rate while lowering the loan sum sought to the minimum, is the best way to get the green light. In this case, unsecured personal loans are expensive but useful.

2. The Payday Loan Option

A payday loan is the most expensive option, but it is also a more certain option when applying for an unsecured personal loan with bad credit. In fact, if the monthly income of the applicant is sufficient, approval is practically guaranteed.

As its name suggests, a payday loan is really a cash advance on an upcoming paycheck. But the lender ignores completely the credit history of the borrower, so approval is practically assured if the income is larger than the principal, plus the calculated interest. Improving loan approval chances really only comes down to seeking the right loan sum.

But the interest rate charged is very high (30% in some cases) while the repayment term is very short (sometimes just 14 days). Also, the loan limit is quite low, with the maximum sum permitted around $1,500. But with $1,950 needed from one paycheck to clear a $1,500 payday loan at 30%, very little is left for regular monthly expenses. The terms of an unsecured personal loan can be much better.

3. Unsecured Credit Card Option

The third option is not strictly a loan, but it is a way to source extra funds when necessary. While credit cards are known to cause considerable financial strain if not managed properly, they can be the ideal solution when managed well. So, when seeking an unsecured personal loan with bad credit, an unsecured credit card is worth considering.

Card issuers restrict bad credit borrowers to very low credit limits, which means significant debts cannot be dealt with but also narrows the potential debt created when using the card. Often, improving loan approval chances comes down to seeking less, rather than more.

This option is still going to be expensive if spending is not controlled. But, access to funds is available, while the chance to greatly improve credit ratings also exists, making it an ideal alternative to looking for unsecured personal loans with bad credit.


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Author : Paul Johnson ~dollar loan center

Blog, Updated at: 12:46 AM

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