The whole concept behind loans that are awarded with no security to speak of is that repayments by the borrower can be easily covered by his or her income alone. The concept is simple, but when bad credit is part of the equation, the issue of income becomes more serious. So, a $50,000 unsecured loan is surely out of the question.
In fact, it is not out of the question and given the right preparation, even on such a large loan, approval despite bad credit can be secured. It all comes down to convincing the lender that they can trust the borrower, and they will get their money back.
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So, what is the secret? Well, it is no secret, it is just a matter of providing the lender with the information they need. Once they feel the transaction is a safe one, then approval of a large unsecured loan is definitely possible.
Why is Bad Credit No Problem?
Of course, it does seem strange that any large loan, especially a $50,000 unsecured loan, can be approved with poor credit ratings such a prominent aspect of the application. But the truth is that bad credit is not so prominent at all. It does have an influence over the terms of any loan, but they are not significant enough to rule out the chances of application success.
In reality, a credit score is no more than an indication of how much a lender can trust a borrower, with low scores suggesting a low level of trustworthiness. But the distinction has been fudged in recent years by many honest borrowers falling foul of negative economic circumstance. Getting loan approval despite bad credit is therefore easier now than years ago.
Also, because income is the sole basis on which a large unsecured loan will be approved, it is issues relating to income that are far more significant in the mind of the lenders. Credit scores are just less important to them.
The Key Issues
Income is hugely important, but that is not to say that someone who earns a large amount of money every month is guaranteed approval on a $50,000 unsecured loan. The debt-to-income ratio is the reason for this. Meanwhile, a bad credit score means that the interest rate is higher, and this too has an influence.
The debt-to-income ratio is designed to protect borrowers from overextending their credit, with a rate of 40:60 ensuring that no more than 40% of an available income can be committed to repaying debts. This means that those sudden expenses, like medical bill for example, can be handled, and financial problems are better avoided. A health ratio makes loan approval despite bad credit more likely.
Still, the interest rate is what can make a large unsecured loan too expensive. This is where the credit score has an impact - improving the score can see the interest rate fall, thus lowering the monthly repayments and making the loan affordable.
Tips When Applying
These factors are important, but there are some details in the application that can help the chances of approval on a $50,000 unsecured loan too. Proof that existing debt is under control can help, by telling the lender that the risks are less. A consolidation loan can actually reduce required debt repayments, thus freeing up more cash to cover the new loan.
Also, getting loan approval despite bad credit is more likely if the sum applied for is kept to a minimum. If only $30,000 is needed than forget the $50,000 sum. A large unsecured loan is expensive enough without maximizing the required repayments each month.
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