It would seem to be outside the realm of possibility that a large personal unsecured loan can be obtained while having bad credit. But it is very possible to do just that. Obtaining a $20,000 unsecured loan is very much possible. It will take some work and the loan application has to be solid, but it can be done.
Many people think that it is a low credit score that keeps them from securing a loan. The fact of the matter is that your credit score is not a determining factor as to whether you will be eligible for a loan or not. The real determining factor is the affordability of the loan.
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Lenders want their money back. Your credit score does assign a risk factor but the true indicator of affordability is whether you have sufficient income and that your debt-to-income ratio indicates you have the extra income to cover the payments.
Interest Rate
Credit scores affect the interest rate set for the loan. At this point the loan application has been approved but the repayment terms have to be set. The lower your credit score is, the higher the interest rate will be. Higher interest rates will make the payments more expensive unless the repayment term is lengthened.
Increasing your credit score will lower the size of the monthly payments and shorten the term of the loan. This also makes the loan more affordable. But increasing your credit score is only possible if you already have the $20,000 personal loan to pay off your other debt and consolidate it into a single monthly payment.
If you wish to increase your credit score by 50 points, all you need to generally do is pay off a small loan or credit card debt. If the terms of the $20,000 consolidation loan are not acceptable at first, this small change may make all the difference.
Loan Size
The $20,000 personal unsecured loan must be affordable or it will not be granted. This means it has to be within your debt-to-income ratio calculations.
The debt-to-income ratio limits are 40 percent of available income. If you have $1,000 in monthly income and have $600 worth of monthly expenses, your extra monthly income is $1,000 less $600 or $400. The debt-to-income ratio states that your maximum monthly payment for a personal loan is 40 percent of $400 or $160. Any personal loan you apply for cannot have monthly payments over $160 if you expect to be granted the loan.
When applying for a personal unsecured loan, always apply for the smallest loan amount you require. Know how much you need before you apply. Otherwise your credit score will lead you to an interest rate that makes the repayment amount too large for your debt-to-income ratio.
Repayment Term
Extending the length of a loan repayment will lower the monthly payments. If you are applying for a $20,000 unsecured personal loan, you will want the longest repayment term possible in order to reduce the monthly payments.
This longer term will make the loan more expensive since you will be paying interest over a longer period which will accumulate more. You are trading affordability now for cost over time. The benefit of this is worth it if you are using the $20,000 to pay off other debt since that will improve your credit score. It will also go up as you successfully may monthly repayments on the $20,000 loan.
It is possible to secure a $20,000 unsecured personal loan while having poor credit scores. It is all a matter of being smart. Look for the longest term on the smallest amount that you need. Consider finding a way to pay off one or two small debts first so that you can make your credit score go up prior to applying for a larger loan.
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