There was a time when a bad credit borrower could kiss goodbye to the chances of getting a large loan without the benefit of any collateral to offer. Having a poor credit history was hugely debilitating, but today, with the right boxes ticked, it is possible to get even a $20,000 unsecured loan with bad credit.
It may seem foolish for lenders to have such faith in anyone with a poor history of meeting repayment schedules, but lenders can never be described as foolish. They have every red cent calculated before granting anything, and even if the applicant does default, they will gain elsewhere.
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So, while securing loan approval may be dependent on strict criteria, it is nonetheless possible to get a large unsecured loan. But what can be done to make this likely?
Satisfying The Conditions That Matter
The first issue that applicants need to concern themselves with is to meet the conditions and criteria that a lender sets. There is no point in applying for a $20,000 unsecured loan with bad credit if the applicant is not in full-time employment and does not have sufficient excess income to afford the repayments each month.
It can come as no surprise that the employment status of the applicant is important, but the confusing issue is usually that of affordability. Just because an applicant has a large monthly income does not mean they can afford the repayment sum each month.
Securing loan approvalis chiefly dependent on this point, so it is vital that it is met properly. Ensuring a very healthy debt-to-income ratio is the key to confirming affordability with a large unsecured loan.- a 40:60 ratio that restricts the share of income to dedicate to debt repayments to just 40%.
What Debt-To-Income Means
So what is the fuss about the debt-to-income ratio? Well, it comes down to the amount of excess income that is available with which to cover loan repayments. When seeking a $20,000 unsecured loan with bad credit, the term of the loan and, therefore, the size of the monthly repayments are key parts of any calculation.
It might seem that an applicant with a large monthly income should be guaranteed approval. However, even if the excess income (monthly income minus monthly outgoings) is large, say $1,000, then acceptable repayments are limited to $400 or less. Even if the applicant believes $600 repayments are perfectly manageable, the application will be turned down.
This means that securing loan approval is as much about fitting within the 40:60 ratio than it is to having a reliable source of income. But it also means that the chances of securing a large unsecured loan can be improved if the state of the debt-to-income ratio is improved in advance.
Improving The Chances of Approval
So what can be done to improve the chances of approval? Well, the secret lies in the amount of debt that exists. The credit score is dependent on meeting repayments on time, and clearing a debt completely results in the score being increased. Getting a $20,000 unsecured loan with bad credit can be much more likely, even with a small improvement in the score.
Clearing a debt can be done by taking out a small personal loan and paying it off almost immediately - like a payday loan. For example, take out a $500 payday loan, make a significant impact on your existing credit card bills and repay the loan in full next pay day.
Eventually, securing loan approval with improved terms is certain, and because the amount of existing debt is lowered, the debt-to-income ratio is improved too. This then makes a large unsecured loan more affordable, and therefore more likely to be approved.
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