The problem with applying for unsecured personal loans with bad credit is that traditional lenders take a bleak view of the degree of risk associated with them. Security is a persuasive element of any loan application, since it provides a certain amount of protection, so a lack of it can be the difference between approval and rejection.
When the applicant in question has a poor credit history, then the desire for as much protection as possible is only to be expected. As a result, lenders are more likely to reject the application. But that is not to say that loan approval with no security is out of the question.
With a strong enough application made to the right lender, the chances of getting the thumbs up for an unsecured personal loan - even a fairly large one - are quite good. Comprising the application, and satisfying typical lender concerns, is the key to it all.
The Issue of Security
Security is a passport to loan approval, but it is not the be all and end all. Providing security basically means that the borrower agrees to sacrifice something of value as compensation should they default on the loan. For applicants seeking an unsecured personal loan with bad credit, no such offer is made.
This effectively means that the weight of risk rests solely on the shoulders of the lender. They will lose the money involved and never be able to recover it. So, granting approval with no security means there is no compensation, and this affects the terms of the loan.
For a start, the interest charged is higher with no security provided. As a result, an unsecured personal loan can be quite expensive. And when the loan borrowed is around $25,000 (the normal limit), it can be very expensive.
What Makes Unsecured Loans Viable?
There are two elements to the answer to this question. Firstly, the specific terms of the loan deal can be made affordable, and this is often down to the repayments schedule. When granting an unsecured personal loan with bad credit, the lower the monthly repayments the better.
Basically, this means offering a longer term loan. If the loan is $25,000, then repaying it over 10 years is much more affordable than over 5, thus making it viable to grant approval with no security. Of course, affordability depends on staying within the debt-to-income ratio (40:60), so borrowers should try to lower their existing debts before applying.
The second element relates to psychology. For lenders, the risk of borrowers not making their loan repayments on time is the aspect of most concern. But bad credit borrowers are statistically less likely to miss repayments on an unsecured personal loan because of their desire to regain their credit reputation.
Key Options To Consider
There are a number of loan options to consider, but the terms and conditions can vary dramatically. Thanks to the Internet, and the comparison sites found there, it is faster and easier than ever before for applicants to find unsecured personal loans with bad credit at competitive terms.
Applying for loans from online lenders has many advantages. For a start, it is possible to get approval with no security within a few hours rather than days, while interest rates are generally lower, and repayment schedules more flexible.
However, it is essential to consider the type of loan too. A payday loan, for example, is usually easy to have approved, but as an unsecured personal loan option, it is very expensive. Repayments are expected in one lump sum, usually within 30 days and at extremely high interest rates, sometimes 30%.