There is a general belief amongst individuals will low credit ratings that even $5,000 personal loans are way out of their reach. This belief is based on the fact that most traditional lenders were at one time almost certain to turn such applicants down, but this is no longer the case. Even with bad credit, applicants can find themselves accessing sums that can make a real difference to a financial predicament.
Traditional lenders, such as banks and other financial institutions, have strict policies when it comes to approving loans for personal use to borrowers who do not have an impressive credit history. The reason is pretty straight forward, with the poor score suggesting such borrowers are more likely to default on their loan and, therefore, cost the lender money. Such risks are not very welcome.
However, the financial reality created by the current economic troubles means that, in the main, lenders have relaxed their policies. The availability of personal loans with bad credit, therefore, has increased significantly. Still, there remains a range of criteria that applicants must meet, but once they are, then even large sums are available.
Reasons Large Loans are Available
It might seem foolish for lenders to take such risks, but there are very good reasons why $5,000 personal loans are being considered and approved. The fact that so many loan candidates have low credit scores as a result of bad luck, rather than irresponsibility, means that the status is exaggerated.
For example, a person with a good credit score a year ago, may have lost his job, struggled to make loan repayments and relied on part time and casual work to earn a living. By getting a loan for personal use, the specific bills that need redressing can be paid, credit card bills can be brought up to date and overdue loan repayments can be cleared.
In essence, by approving a personal loan with bad credit, the borrowers can improve their financial situation, clearing some debts and freeing up a share of income once again. It is this share that can be used to repay the loan, and it is their intent to improve their condition that makes them a lower risk than their credit rating suggests.
Secured and Unsecured Loans
When it comes to getting a $5,000 personal loan there are two types on offer, namely secured and unsecured loans. The key difference is secured loans require collateral, but as a result are available in larger sums and for lower interest rates, even with bad credit being a factor. Unsecured loans, meanwhile, are more limited because of the perceived greater risk.
Nevertheless, to get approval on a $5,000 loan for personal use requires some assurances. The most obvious for both secured and unsecured loans is proof of employment, and of a regular income. Only with this can a lender feel confident that the repayments will be made on time.
Other documentation sought for large personal loans with bad credit are a social security number and government awarded ID, such as a drivers license.
The Online Option
The rise of online lenders has largely driven the availability of $5,000 personal loans. Their willingness to approve applications made by those who were usually turned down by banks created a new niche market. The competitiveness of the internet, meanwhile, ensures these loans for personal use have the lowest possible rates.
There is still a need to provide proof of income, of course, and some official ID, but personal loans with bad credit are certainly easier to get approval from online lenders than from traditional ones. And this factor is an important one to the borrower when it comes to seeking large loans, such as $5,000 personal loans.