Why Post-Bankruptcy Personal Loans Are Easier To Secure Than Many Think
Bankruptcy is not the impediment to loan funds it once was, thanks to the availability of post-bankruptcy personal loans. But what is needed to get the green light on an application?
It does seem strange that any lender would be willing to accept the degree of risk associated with such bad credit borrowers. But granting approval with poor credit histories is not a rare thing anymore, and as long as the key factors are in good order, then bankruptcy need not prevent an applicant from getting the green light.
As with any personal loan, the ability to meet repayments is the number one concern, and once that is satisfactorily confirmed, there is very little preventing a lender from approving the application. But what is needed to convince lenders to part with their money?
Proving Loan Affordability
Affordability is the most significant factor when seeking loan approval, but it can only be proven through the use of the debt-to-income ratio. The ratio establishes how much excess income an applicant has, and limits the portion of that sum to use in repayments to just 40%. To get a post-bankruptcy personal loan, the new repayments cannot force the share above that limit.
The excess income is calculated by comparing the monthly income with the typical monthly outgoings, and seeing what is left over. The good news is that getting approval with poor credit histories is not difficult if the ratio is comfortably within the 40% range.
But, the ratio also greatly limits the potential loan sum. For example, if the excess income is $1,000 each month, it might seem that a personal loan requiring $500 repayments each month is affordable. But, the ratio will not permit repayments of more than $400.
The Truth About Bankruptcy
Having spent perhaps 2 years with little opportunity to secure a loan, it may seem unfair that a post-bankruptcy personal loan should be so hard to get. But there are reasons why they have been difficult to get and are more easily secured today.
First of all, bankruptcy has traditionally been viewed as an act of desperation chosen only by those unable to clear their debts. And those who have opted to file bankruptcy proceedings invariably escaped from actually repaying them at all.
Understandably, when the reason is bankruptcy, applicants seeking approval with poor credit histories are viewed strictly. However, the situation has changed because the economic crises of the past few years have left many honest borrowers with little option, making access to funds from personal loans more difficult to get.
Loan Terms On Offer
While having access to post-bankruptcy personal loans is largely welcomed, there are some factors that should be kept in mind. For a start, the terms are not great, and while that too is no surprise, the severity of the terms can vary dramatically.
When a 2-year bankruptcy term has finally ended, the loan limit is typically low while the interest rates charged are above the normal rate. Usually, the maximum sum on offer is $10,000m but more likely sums to secure are $3,000, or $5,000. And if some collateral is provided, getting approval with poor credit histories is much more likely.
Improving terms can be done by taking out very small personal loans, like payday loans, and repaying them on time. These can be just $100 to $500, and with each loan cleared, the credit rating is rebuilt. In a few months, much larger sums can be applied for.
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ABOUT THE AUTHOR
Devora Witts is a certified loan consultant who helps people get approved for Loans for People with Bad Credit and Bad Credit Mortgage Loans. To get aid with your financial situation you can visit her at http://www.badcreditloanservices.com