The accepted rule is that bad credit equals no large loans. It is a rule that has developed over a long period of time, but it has effectively become irrelevant in the economy of today. The fact is that it is possible to get a large loan, like a $20,000 personal loan, with bad credit. It is just a matter of submitting a compelling application.
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Bad credit scores are of little influence, partly because lenders know that many honest borrowers have been affected adversely by the economic slowdown of recent years. For this reason, there is a stronger chance of securing an approved loan application than there was in the past.
Also, when applying for a $20,000 personal loan, a credit score was never really the deciding factor. If other, more influential factors are in order, then there should be little trouble in getting the green light from lenders.
What Are the Key Factors?
Knowing how to structure an application effectively is essential if a large loan is to stand any chance of getting approved. For example, trying for a $20,000 personal loan with bad credit is one thing, but offering the lender the information that builds their confidence in the applicant is what really matters. The crucial factors are having a reliable income, the debt-to-income ratio, and whether any collateral can be found.
The importance of having a reliable income is obvious. Lenders will not approve any kind of loan to an applicant who can offer no certainty in terms of income. So, proof of income from an employer, or from tax returns when self-employed, is needed if an approved loan application is to be secured.
The debt-to-income ratio is even more significant. This relates to how much of the income is free to use to repay the loan, so if the existing debt repayments are too high, then the application for a $20,000 personal loan, for example, is almost certain to be rejected. A ratio of 40:60 is recommended, which means just 40% of the income can be free to use to repay loans.
Collateral or Cosigner?
Getting collateral is always a major plus when applying for a loan, especially something like a $20,000 personal loan with bad credit. The fact that an item of value is provided as compensation should the borrower fail to pay, means that the lender can be confident of recouping their investment at least.
However, the applicant must first locate an item that is valuable enough to match the sum of the loan being sought. Only very few people will have a $20,000 item of jewelry in their possession, or even a car worth that much. Securing an approved loan application is one thing, but is the borrower willing to lose the item if things go wrong?
A cosigner is seen as the best option in any case, with lenders happy to know that the repayments will be made on time. This makes a $20,000 personal loan application all the more likely to be approved.
Finding a Lender
Of course, finding the right lender is essential too. When seeking a $20,000 personal loan with bad credit, the best terms are to be found online, but the interest rate charged may be a little higher than usual. A subprime lender is a safe bet when it comes to ensuring approved loan applications, but they are well-known to charge higher rates in return for ignoring the risk involved.
Nevertheless, when it comes to securing something a large as a $20,000 personal loan with a bad credit score part of the equation, it may be worth looking for a subprime lender despite the extra cost.