For anyone thinking of applying for a loan, it is worth learning what it is lenders are really interested in. Most of us believe that our loan repayments and debt management history is the key to getting approved, but this is not true. Securing an unsecured loan with bad credit is down to other factors.
A lender really only wants assurance that the repayments due will be made on time, and that the risk of default will never actually materialize. This effectively means that credit scores are irrelevant, opening up the possibility of enjoying even large loan approval.
The reason why lenders have not closed ranks on bad credit borrowers can vary. Honest borrowers have seen their scores fall as they struggle in a harsh economy, while the reality it that lenders must lend to make a profit. As a result, even unsecured loans are available.
The Factors That Really Matter
So, if credit scores do not really matter, what are the factors that do? Well, the issue of repayment is the key, with lenders willing to grant an unsecured loan with bad credit so long as the ability to meet repayments comfortably is confirmed.
This means the two most important factors are the source of income and a healthy debt-to-income ratio. The income source is pretty simple to confirm, and is clearly expected by lenders. There is no chance of getting either small or large loan approval if proof of income is not supplied - usually via a bank deposit history or tax returns.
The debt-to-income ratio relates the amount of income minus the total monthly expenditure. Once the excess income is calculated, the set rate of 40:60 means no more than 40% of that sum can be dedicated to repaying the unsecured loan. Lenders will not bend this regulation.
Navigating The Problems
Of course, the problem for anyone seeking an unsecured loan, with bad credit or not, is that lenders are reluctant to lend when there is no security provided. Security gives them a means to secure compensation in the event that the borrower does default on the loan.
Getting around this problem is simple, if the right person can be found. A cosigner added to the application effectively removes the element of risk because they guarantee that monthly repayments will be made. This is because they will step in to make the repayment if the borrower is not able to.
This is hugely useful when seeking large loan approval, but it can be hard to find someone who fits the bill. A cosigner needs to have an excellent credit rating, and a healthy debt-to-income ratio, before they will be accepted on an unsecured loan application.
Applying For The Right Deal
But even when income and debt-to-income ratios are perfect, and a cosigner is found, should it not take a while for the application to be approved? A loan sum of $10,000 or $15,000 is not minor, so lenders are still going to need to be sure before approving an unsecured loan with bad credit.
Well, this depends on the lender that is applied to. The best options are to be found on the Internet, where online lenders tend to offer the most competitive terms. They also often provide no credit check approval processes, so even large loan approval is possible - though usually at a limit of $25,000. A cosigner will secure much higher sums.
Of course, it is essential that care is taken before agreeing to any unsecured loan deal, especially over the Internet. Check out the reputation of any prospective lenders, and once approval is given, expect funds to access within hours.