Bad credit scores do impact the chances of getting approved for large unsecured loans. But the chances are not zero. To be honest, credit scores are becoming more and more irrelevant to the loan approval process. They are only used for interest rate terms. If you need $20,000, it is possible to secure a personal loan even with bad credit.
Thanks to the recent economic collapse and the collapse of the housing market, even the honest homeowner has taken a credit hit. This makes the credit scores inaccurate as an indicator of whether you are trustworthy or not.
Today the indication of whether you are trustworthy or not when it comes to obtaining a loan is the affordability of the loan to your personal budget. Affordability makes a loan more likely to be approved today.
Employment, income and debt-to-income ratio are far more important to the lender than the credit score. These are the factors that determine affordability.
Things to Consider
When putting together your loan application you need to consider some key issues. Income is a basic requirement if you are looking to secure a $20,000 personal loan. This should be common sense since without sufficient predictable income there is no way you could afford the monthly loan repayments. This income is used to calculate your debt-to-income ratio which indicates whether you can afford to take on the repayment amount.
This clear ability to make repayments must be full-time and generally must have existed for at least six months. This lets the lender know that you are likely to continue receiving this income in the future. Do not worry if you are self-employed, your lender will be more interested in your income tax returns as an indication of having a source of sustained stable income.
Debt-to-income ratio of forty percent is generally sufficient to obtain a large personal loan.
Security Sweet Security
Lenders only lend to people from whom they can expect to get their money back. Security removes the risk of nonpayment. If you can put up a $20,000 asset as security, you are fairly likely to receive approval for a $20,000 personal loan. In this case, credit history is not even a factor.
Collateral is the most common form of security. Unfortunately, most assets lose value over time and so the collateral must be much higher than the amount of the loan to account for this depreciation. Sometimes collateral is not the most practical way to get a personal loan.
It is a much better option to secure your personal loan by finding a cosigner. Your cosigner guarantees the repayments. If you do not make the repayments, your cosigner is obliged to make them for you. If you have bad credit, your cosigner will probably have to have great credit and perhaps a large income also.
Research and More Research
Choose your lender wisely. They have a huge say when it comes to the approval terms. Traditional lenders are less likely today to approve larger personal loans to people with bad credit. Credit is extremely tight in the traditional lender community and is expected to stay this way for the near term.
However, the internet has brought a new breed of lender to the marketplace. These online lenders are a much better choice when it comes to personal loans. There are online lenders who only lend to people with bad credit. Higher interest rate and longer repayment terms are their specialty. This makes the loan affordable.