Getting Unsecured Loan With Bad Credit: How Keeping Things Real Helps

Nov 5
08:53

2012

Joycelyn Crawford

Joycelyn Crawford

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The idea that loan approval is unlikely with low credit scores is slightly inaccurate. It is possible to get unsecured loans with bad credit if a degree of realism is adopted when applying.

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Looking for a source of funding when bad credit scores are a factor in the equation can be difficult,Getting Unsecured Loan With Bad Credit: How Keeping Things Real Helps Articles especially when there is no collateral available to offer. Lenders will point to the degree of risk they are taking on, and the high rate of interest that would have to be charged. But this is not to say that it is impossible to get an unsecured loan with bad credit.There are criteria to satisfied before any lender will even consider giving an application a green light. However, the chances of getting loan approval can be greatly improved by adopting some fairly simple strategies in advance of filling out the application form.The reality is that compromises will have to be made, but with the advantages that come with simply getting an unsecured loan approved is well worth any extra expense. The loan, after all, is as much an investment in your financial future as anything else.Why Unsecured is AcceptableIt may seems strange that lenders would consider lending to borrowers with a bad credit history, but there is method in their madness. Lenders know that applicants for unsecured loan with bad credit have a vested interest in meeting their repayments, since it provides them with a chance to improve their credit scores.The problem with loans granted with no security is that if something should go wrong, the lender has nothing with which to gain compensation. It also means borrowers cannot lose any possession should they default, so other than having to make repayments on time, getting loan approval does not carry any consequences.  Also, lenders are willing to accept the risk of losing money on an unsecured loan because their profits are increased considerably should repayments be made on schedule. This is due to the higher interest that is charged.The Key to ApprovalIt is generally believed that bad credit scores are certain to make approval unlikely, but this is not actually an accurate assumption. True, a poor credit score will have an influence, but not on the overall approval process. For this reason, it is possible to get an unsecured loan with bad credit without the perceived nightmare application process.What is really important is the income that is earned, and how it stands up against existing debt. Simply put, getting loan approval depends on the debt-to-income ratio by which lenders measure the affordability of a loan. The ratio stipulates that no more than 40% of available income should be used to repay a loan, ensuring enough is free to cover unexpected bills too.For example, if only $1,000 income is free, then a maximum of $400 can be used in repayments. This means that even high earners can see an application for an unsecured loan rejected if repayments break the 40% limit.Keeping Things RealLarge loans at low interest are a pipe-dream when it comes to applying for an unsecured loan with bad credit, so keeping things real is important. Three main issues are affected by bad credit - interest, loan limits and fees.With interest rates, it is unlikely they will be very low, though competitive rates can be found online. Loan limits would also need to be low if there is any chance of getting loan approval, with anything over $5,000 considered a stretch. Terms available on sums higher than $10,000 can be debilitating.Finally, missed payment fees and other charges are set higher than for borrowers with an excellent credit history. But remember these do not come into play at all if the repayment schedule of the unsecured loan is adhered to.