Even though unsecured, bad credit loans are comparatively expensive, getting approved for one of them recently became very much easier, and if you follow the right steps, then not only is approval almost certain, but you'll also get the best available deal as well
All lenders prefer to lend to people with lots of collateral and sky-high credit scores, but the present crisis means that the number of people in that bracket has fallen dramatically causing banks to consider loan applications that they would have immediately rejected just a few months ago.
I said that success 'is almost guaranteed' if you follow the right steps, so let's go take a look at the steps.
In essence, a signature loan, or an unsecured loan, whatever you want to call it, is basically a 'character loan' meaning that the borrower basically signs on a piece of paper and promises to pay back the loan.
If your credit score is poor or worse, but you have a checking or savings account that's in good standing at a local bank, and especially if you know many of the staff on a first name basis, then that's the first place where you should apply for an unsecured loan.
The reason for trying you own land-based bank first, is that if they do agree to give you a loan, then the interest will most likely be considerably lower than what you'll pay elsewhere.
If your local bank turns you down, then your next step should unquestionably be to check out a number of online lenders, and I mean "a number".
Right now, the competition amongst online banks is cutthroat, which means that the lenders are less picky about who they lend money to, and also that their quotes can very often be negotiated downward.
After you've received several approvals, you should list them with the bank offering the best terms at the top. After that, contact each of the other banks in turn and tell them what the first bank has offered and see if they'll make you a better offer. Always put the bank with the best terms at the top, and repeat the procedure until nobody is willing to better what the bank at the top of the list is offering.
It's important that you understand and internalize, that interest rates for unsecured personal loans will almost certainly be higher than those for even credit cards because there is no collateral, and the repayment term will most likely be shorter too. Moreover, the worse your credit rating is, then the higher the interest rate will be.
Nearly every bank will check a potential borrower's existing debt-to-income ratio, and the ones who have a debt-to-income ratio of less than 35% will obviously be looked at more favorably.
Having mentioned several downsides to bad-credit, unsecured loans, I'd like to finish by adding a couple of pieces of very good news.
Until quite recently, only people with a very good credit history, a steady income and a FICO score of at least 760 could expect to qualify for an unsecured loan, but the present crisis has caused many lenders to reevaluate, and even though a person with bad credit won't be offered such good terms as a person in good standing, they will now almost certainly be offered a loan by a number of lenders.
What's more, if you make regular payments on an unsecured loan and pay it off on time, then your credit rating will markedly improve.
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The author of this article was a top film sound editor for many years and he produced a film for Columbia at a very young age. He has a passion and a flare for economics, and one of his websites ->
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