Statistics show that the average sum required by borrowers to make a difference to a poor financial situation is $20,000. It may seem like a large amount, but when all the outstanding balances on loans, credit cards and utility bills are considered, it is a fair one. The problem is getting a $20,000 personal loan with bad credit.
Having a bad credit rating can cause some complications when seeking a large sum of money from lenders. After all, the larger the sum the larger the risk the lender is accepting, especially when the loan is unsecured. But the good news is that it is possible to get loan approval with low credit scores.
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So what can be done to accomplish this? Meeting the necessary criteria is the first step, but there are some other factors that should be considered before applying for a large personal loan. Here are just 3 of them.
Seek a Secured or Unsecured Loan?
It can seem trivial, but the status of the loan applied for can make a huge difference to the chances of success. By status, we mean whether the loan is secured or unsecured, and there seems little doubt that when seeking a $20,000 personal loan with bad credit, secured is the best option.
The reason is quite straightforward. When a loan is secured, collateral is provided from which the lender can draw compensation should the borrower default on their repayments. Getting approval with low credit score is no problem because security is given. The problem is finding an item valuable enough to use.
But it is a different matter when it comes to unsecured loans, where lenders rely on the promise of the borrower to make their repayments to get their money back. And with large personal loans that are unsecured, the higher interest rate charged means the risk is higher.
Keep Your Application Realistic
A major mistake that many people make when applying for loans is to seek a sum too large to afford. Applying for a $20,000 personal loan with bad credit is perfectly fine, but if the repayments are too much then the application will be rejected.
It is important to take time to calculate exactly how much in monthly repayments is affordable. The point is to fit within, not just your own budget but the accepted debt-to-income ratio which lenders stick religiously to. The ratio states not more than 40% of income can be used to repay loans, so repayments of any new loan cannot push the percentage over 40.
Getting loan approval with low credit scores is practically guaranteed if the debt-to-income ratio stays below the set mark. So, instead of seeking a large personal loan of $20,000, look for just $15,000 if that is all that is really needed.
Choose Your Lender Carefully
A third secret is to carefully identify the lender that is worth applying to. Going to your local bank and seeking a $20,000 personal loan with bad credit is likely to end in disappointment since traditional lenders have strict lending policies, especially regarding credit ratings.
Of course, a secured loan application is not going to be so readily rejected, but even with unsecured loans, the terms available from online lenders are usually better than any banks can offer. As specialists in bad credit lending, the likelihood of approval with low credit scores is extremely high, and because the repayment term is usually 10 to 20 years, the size of monthly repayments is low.
The result is a better chance at securing the large personal loan needed. But be sure to spend time searching the Internet for the best offers, and check out any prospective lenders with the BBB website.
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