It only seems logical that in order to convince a lender to grant a large loan, it is necessary to have an impeccable record. After all, the larger the loan; the greater the risk – though providing some collateral helps to patch that up. But even someone seeking a $20,000 personal loan with bad credit can look forward to approval.
This is not foolish talk. There are several lenders willing to grant what are known as high risk loans, mainly due to the fact that higher profits come with them. But even when higher interest rates are charged, securing loan approval with competitive and affordable terms is possible.
True, credit scores can have a minor influence on terms, but with income and debt-to-income ratio the two most significant factors in the approval process, a large personal loan is within reach regards the credit score, if these are addressed.
What Lenders Really Care About
There is a tendency to believe that lenders are obsessed with credit scores, but this is untrue. We are warned about our credit history to encourage us to maintain our repayment schedules, but lenders are more interest in other factors. So, seeking a $20,000 personal loan with bad credit can always end happily.
Income is one of the two chief factors that lenders really care about. After all, if an applicant has not got an income, or at least a large enough income, then he cannot make the necessary repayments. Hopes of securing loan approval rest on being full-time and gainfully employed, or having a profitable business.
Of premium concern, however, is the debt-to-income ratio of an applicant. This is what reveals whether the repayments on a large personal loan are affordable or not, with current debts compared against monthly income. Of the excess income, only 40% is permitted to be used to cover the new loan.
Adding Security Can Swing The Deal
While proving affordability is an essential part of any loan application, convincing the lender that repayments will be made without a hitch, and they will get their money back, is equally important. With that in mind, offering some security is the best way to convince them that granting a $20,000 personal loan with bad credit will not be regretted.
Collateral can be used as compensation in the event that the borrower does default on the loan, but it also has to match the value of the loan. With a $20,000 loan, finding possessions worth that amount of money can be difficult.
A cosigner is probably the best option, and certainly makes, securing loan approval much easier. As a guarantor, the cosigner promises to make the repayments in the event the borrower is not able to do so. That lowers the risk greatly, allowing the lender to lower the interest rate. This can mean significant savings with large personal loans.
Trust In The Online Deal
As friendly as a local bank might seem, traditional lending institutions have strict lending policies that tend to give bad credit borrowers a hard time. A worthwhile choice of lender is an online lender, with whom those seeking a $20,000 personal loan with bad credit are more likely to get competitive terms.
What is more, securing loan approval is much more likely since they are recognized experts in bad credit lending. And their loan packages are specially structured to accommodate the needs of bad credit borrowers.
For example, the loan term is longer so that the monthly repayments on large personal loans are kept as low as possible.