Whether or not a personal loans for those with bad credit is granted depends on how a lender sees risk mitigation when dealing with each individual borrower. Just about every lender in the business wants to be paid back. And they carefully weigh the interest rate they charge against the reality of the loan actually being repaid. When determining risk mitigation, a number of factors come into play. They can include:
- The amount of the loan.
- The credit score of the borrower.
- The income to debt ratio (how much income vs. how much debt).
- The security or collateral offered, if any (real estate, etc.).
While a lender will look at credit scores, the determining factor will be your debt to income ratio. Will you be able to afford the loan when payments come due. Credit scores will be used primarily to determine your interest rate rather than your approval. These lenders understand that folks with poor credit need financial assistance from time to time.
One of the primary misconceptions borrowers may have is that there really is such a thing as a 100% guaranteed personal loan for those with bad credit. The notion of such a thing existing is comforting if you have bad credit and are faced with a need for a cash infusion. That misconception and a few others are worth explaining.
No rule of law exists that requires a lender to guarantee a loan to anybody who walks through the door. Ergo, there is not such thing as a 100% guaranteed loan. However, once you are pointed in the right direction, that chances of your qualifying for a personal loan for those with bad credit are very good.
Bad credit does not mean that you cannot find a lender willing to grant you a personal loan for those with bad credit. These lenders have unique methods to determining your qualifications and they are not centered on your credit scores. As mentioned earlier, your income and your debt load are going to be the main factors.
You can expect to pay usurious interest rates because of your bad credit. Lenders will charge you interest rates according to your credit scores, but competition is fierce in the market for personal loans for those with bad credit, and you will be able to shop to get the best rates. Also, laws govern interest rates to keep them from being ruinous to borrowers. They will be higher than those for folks with good credit. Offering collateral will lower rates substantially.
Sticking with one lender for application and approval is wise. No reason exists to apply to only one lender. Many lenders are out there and the interest rates and repayment terms all vary. Apply to three or four of the best ones and choose from there. Why do people apply to one place, get rejected and give up? It makes no sense. Applying to many will help your approval chances and ensure you get the best terms.
Any personal loan for those with bad credit will have to be rather small because of the poor credit ratings. Personal loans usually range from $100 to $1500. But it is not unheard of for borrowers to get $2,500, $5,000 or even $10,000. Work with your lender.
Once you take these five misconceptions into account, you will understand that getting a personal loan for those with bad credit is not that difficult. Go forth, shop wisely and get the cash you need.