The important thing to remember when applying for any loan is that approval comes down almost always to the same thing - affordability. Perhaps that is why, even with a terrible credit record, those seeking personal loans with bad credit can see their applications approved.
The question is how an application from someone with such a weak financial situation can see their efforts get the green light. Are credit scores really that meaningless? Is there anything that can ensure guaranteed loan approval? What are the criteria that really matter?
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The fact that a personal loan can be approved despite some poor credit scores is no great shock in the lending industry. Here, we reveal 3 factors that can help to greatly strengthen an application.
1. Know How Your Credit Is
It is important to get off to the right start, and the best place to start is with some self-examination. What we mean is to take a careful look at your credit status and credit scores. Often, those seeking a personal loan with bad credit never stop to think how the lender will view them, and therefore fail to identify the weaknesses in their application.
Once the weaknesses are identified, the applicant can set about strengthening those areas. Nothing can ensure guaranteed loan approval, but a low score may be down to an outstanding loan repayment. Once that is dealt with, the score can be improved. Sometimes the credit score is wrong, with a previously cleared debt not taken into account - reviewing the score is very effective.
But be prepared to seek a small loan to simply clear one or two outstanding debts. This will increase the score, improve the crucial debt-to-income ratio, and enhance your chances of securing the personal loan with good terms.
2. Consider Your Lender Options
Once upon a time, we were restricted by the choice of lender out there. Most traditional lenders offered the same kind of deals, but today securing a personal loan with bad credit can depend greatly on the lender we approach.
The reason is not just the reputation of the lender, and whether they are open to granting loans to bad credit borrowers, but also the small details of their loan contracts. For example, have they hidden fees in the small print? What are their late fees policies? And, is early repayment penalized too?
Online lenders typically charge the lowest interest rates, and usually carry out no credit checks, but stop short of promising guaranteed loan approval. But there are criteria to meet, with applicants who have no full-time job and a low income unlikely to enjoy an approved personal loan.
3. Security Is The Key
Something that effectively removes any doubt in the minds of lenders is collateral, or some form of security. Even when considering a personal loan with bad credit, it is hard for them not to give the green light when they have compensation should the borrower default.
Collateral refers to items of value being offered as compensation, but they must match the value of the loan principal and this can cause a problem when it comes to large loans. However, if collateral matching the value is found, then it is as close to guaranteed loan approval as anyone can get.
An alternative is a cosigner, who guarantees that the monthly repayments will be made. This is not strictly security, but effectively assures approval of the personal loan without having to find items of matching value. The only condition is that the cosigner has an excellent credit record and a large enough income.
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