How Getting Personal Loans With Bad Credit Can Begin Financial Recovery

ny lender who accepts the risk of taking on bad credit borrowers without question has clearly already calculated the chances of making a profit from the deal. Remember, no lender goes into a loan deal with their eyes closed, so granting personal loans with no credit checks is a carefully considered strategic loan option.

The simple fact is that statistics consistently show that borrowers are more interested in rebuilding their credit reputation than they are in taking the money and running. And in any case, a large percentage of bad credit borrowers today are honest borrowers who fell victim of the economic collapse of four years ago. So, get approval despite bad credit is not such a major risk.

Also, credit scores were never a major aspect of the approval process, so if any part of it is to be cast aside to make a personal loan faster to access, the minimum of risk is associated with the credit check.

Limitations on Loans

But lenders are not about to grant a $50,000 loan to someone who is not fully checked out. They have set clear limits to the size of the personal loan, with no credit checks offered to small sums from just $100 to $1,500. What is more, they come a very high interest rates to protect them further from losses.

There is no mystery to these limits, with the lower loan limit ensuring the maximum losses are kept low. This means that offering approval despite bad credit is really of use to those applicants who must pay specific emergency expenses or debts. Perhaps, a hospital bill or a final notice on late mortgage payment, for example.

For borrowers, the small loan does little to help the pressure of repaying these personal loans when high interest rates are charged (25%), and a repayment term is as short as just 14 days.

Payday and Cash Advance Loans

The fact is that these loans are better known as payday loans, or as cash advance loans. This is because they are granted against an imminent paycheck, and not on the basis of a long period of repayments. Offering personal loans with no credit checks means approval is almost certain, just proof that the next check is large enough to cover the sum borrowed, plus interest.

Repayments are usually complete in one go, a policy that also protects the lender as there is less opportunity for the borrower to fall behind or default. What is more, though offering approval despite bad credit, the likelihood of getting their money back is almost guaranteed.
Securing funding is not easy when applying for personal loans with bad credit. Most lenders are hesitant when it comes to considering applications from bad credit borrowers, especially when the loan sum is large. But convincing them that repayments will be made on time is certainly not out of the question.

There are issues that need to be dealt with first, of course, which will strengthen the application and make it difficult for lenders to say no. Then getting loan approval is more likely, and the route to financial recovery can be cleared.

But what are the main considerations when compiling an application that is strong enough to ease lender worries? These are quite simple, from choosing between a secured or unsecured loan to detailing the purpose of the loan funds. Then the personal loan, whether large or small, is closer to being attained.

Secured Or Unsecured Loans?

The first choice people face when seeking a personal loan with bad credit is whether to apply for a secured loan or an unsecured loan. There are significant differences between the two, not just in the chances of getting approved but in the affordability and loan size.

Secured loans are issued with some form of collateral promised in compensation to the lender in the event that the borrower defaults on the loan. The addition of collateral means that the interest rate charged is lower, but getting loan approval is dependent on the value of the collateral at hand. A $20,000 loan will not be given with collateral worth $10,000.

Unsecured personal loans have no collateral involved and so come at higher interest rates and usually more limited loan sizes. A variety of types offer differing approval chances, but they can range from $100 to $25,000, with repayment terms from 14 days (payday loans) to 10 years. The longer the term the more affordable the larger loan sizes are, but also the better the chance of approval.

Key Factors to Approval

The debt-to-income ratio is probably more important. The ratio is calculated by combining all of the existing outgoings (loans and general monthly expenses), and comparing them to the total monthly income. A 40:60 ratio is set, meaning only 40% of the excess income can be used to repay any new personal loan. Failure to stay within the 40% mark guarantees rejection.

The Value of Purpose

With the chief approval aspects being income and the debt-to-income ratio, bad credit clearly has little to do with the process, which is good news when applying for a personal loan with bad credit. However, there is more to it than that also.

Purpose plays a very big part in getting loan approval, with lenders wanting to know that the funds will not be wasted. While technically funds from a personal loan can be used for anything, frivolous purposes are unlikely to convince lenders to approve the loan. However, something like clearing existing debts is impressive.

And the benefits of having such a responsible purpose mean the terms of any future loans are much better, with lower interest rates and a greater likelihood of any application being given the green light.


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