There was a time when lenders were expected to turn down loan applications from applicants with bad credit ratings. The risks, they would say, were too high and the interest rate would make repayments too high. But in fact, getting an unsecured loan for bad credit management purposes can be a perfect solution to financial problems.
While it is true that getting loan approval with no collateral is not always easy, there are some grounds on which lenders are willing to give the benefit of the doubt. One of these is the purpose of the loan, with the understanding that an applicant who is trying to restore their financial status will be a reliable borrower.
Of course, this does not mean that an unsecured loan is easy to get if the stated purpose is admirable. There is a set of criteria to meet, and if they are not satisfied that approval is not going to be granted.
Unsecured Vs Secured Loans
In case there might be some confusion over the difference between unsecured and secured loans, it all comes down to the availability of collateral. An item of value is provided as compensation should the borrower fail to make their repayments. It can be difficult to get unsecured loans, for bad credit borrowers especially, because there is nothing offered as security.
The biggest problem is finding an item that is worth the same as the value of the proposed loan. If a large sum, like $25,000, is required then one or more items worth $25,000 is needed. For many people with bad credit histories, property of that kind of value is practically impossible to find.
Getting approval with no collateral is all about convincing the lender that their investment is safe, and this can be accomplished in other ways. Proof of income is just one of them, but is not always the sure thing that is needed to seal the deal for an unsecured loan.
Improving the Application
It is not that difficult to strengthen an application for an unsecured loan for bad credit management. As already mentioned, the fact that the purpose of the loan is to take control of the financial situation is a positive aspect. It convinces the lender that the applicant is someone who is responsible by nature and is looking to regain their financial status.
However, if that is not enough, the addition of a cosigner in the application is hard for lenders to ignore. A cosigner provides a guarantee that the monthly repayments will be made, even if the borrower is unable to make them. This is more preferable because collateral brings with it the added chore of turning collateral into cash. So, approval with no collateral is fine, if a cosigner is added.
Other ways to make improvements include taking small unsecured loans out to help clear some debt and so build up the low credit score in that way. This takes some time to be effective, with perhaps 4 or 5 payday loans needed over a period of 6 or 8 months.
Terms to Expect
The terms of an unsecured loan for bad credit can be influential when it comes to seeking approval. Large loans are generally needed to make a true difference to a credit status. Most lenders will have a limit of between $10,000 and $25,000 when approval with no collateral is being sought.
However, once the basic criteria is met – like age, proof of income and an ability to pay – then the application for an unsecured loan is at least on solid ground.