Bad Credit Unsecured Personal Loans Are Within Reach, Even Without Collateral
Many expect applying for a personal loan with no security, and with bad credit, is doomed to fail. But even bad credit unsecured personal loans are available if the right approach is taken.
In truth, lenders are cautious about bad credit ratings, and the reasons why an applicant might have one. So, when it comes to bad credit personal loan approval without security, their attitude is a little like being on red alert. By calming their concerns, they will feel happier about approving the application.
However, in getting unsecured loans approved with bad credit there are some compromises necessary. Interest rates may be high, terms not ideal and loan limit low, but competitive terms can be secured if the right lender is approached.
Why Unsecured Loans?
It might seem strange that bad credit unsecured personal loans are given the green light at all. Secured loans are more likely to be approved because of the inclusion of collateral. Collateral is an item of value offered in compensation to the lender should the borrower default on the loan.
But statistically applicants are unlikely to have items of sufficient value to offer as security. That is why often it is the item that is purchased via the loan that becomes the security, like the car in an auto loan or the house in a home loan. For bad credit personal loan approval without security, however, there is no set purchase identified so the lender is taking something of a leap of faith.
The only grounds the lender can issue approval on is income, with the credit rating only an indication of their history rather than their ability now to pay. So, it is possible to get unsecured loans approved with bad credit if the math adds up.
Importance of Income
The significance of income is extremely high in the case of bad credit unsecured personal loans. But more than just the figure of the monthly salary is used in the calculation.
For example, an applicant with an income of $5,000 might seem to be a safe bet. But if there are existing loans to repay, and the typical monthly outlay on utility bills and living expenses are high, then bad credit personal loan approval without security is unlikely.
This is because of the debt-to-income ratio, which indicates the percentage of available income. Lenders require a cushion of around 20% to allow for unforeseen expenses, and so a 40:60 ratio is the accepted limit. Unsecured loans approved with bad credit need to fit within that ratio.
Realistic Loan Applications
To get approval on bad credit unsecured personal loans, it is important to consider what is acceptable to the lender. Looking for $100,000 with no collateral, no identifiable purpose to the loan and a low credit rating, is almost certain to end in disappointment.
A loan of perhaps around $3,000 is certainly more reasonable, so bad credit personal loan approval, without security, is possible. This is due to two reasons: firstly, the lender knows that the repayments are manageable, and secondly, the lender can see the applicant has a mature attitude.
The fact is that unsecured loans approved with bad credit is a golden opportunity to improve credit ratings, and if a lender knows the applicant sees it as this, they will be much more comfortable about giving the thumbs up.
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ABOUT THE AUTHOR
Joycelyn Crawford is the author of this article. For more information about Easy Loans for Bad Credit and Bad Credit Home Loans please visit her site http://www.easyloanforyou.com