For bad credit borrowers, the chances of getting a $20,000 unsecured personal loan approved would seem to be pretty slim. But so long as an ability to make repayments is proven, even a bad credit history is not enough to kill the chances of having an application approved.
Credit scores have only a limited influence in an approval process, so getting loan approval without collateral is hindered only by the lack of security in the deal. But if the set criteria is met, and the overall application is strong enough, there is little reason for lenders to reject a submission.
So, large unsecured loans are available to applicants who submit applications that are in the right order. And even with no collateral to speak of, there ways of sidestepping that matter too.
Collateral And Alternative Security
The absence of any collateral does create a bigger risk factor for lenders, but that is not to say that the borrower of a $20,000 unsecured personal loan is not going to make the repayments. In fact, bad credit borrowers are statistically more likely to pay without a hitch because they are rebuilding their credit reputation.
Getting loan approval without collateral is not impossible, but it can be expensive due to lenders raising interest rates to compensate for the greater risk. Finding an alternative source of security would drastically reduce costs, which is where a cosigner comes into the picture.
A cosigner is not technically security, since they only promise to step in to make repayments should the borrower no longer be able to. This means the large unsecured loan is guaranteed to be repaid, which lowers the risk factor and the interest rate, thus making the loan more affordable.
Are Credit Scores Really Ignored?
Actually, credit scores are not completely ignored, since they have an influence over the interest rate that is charged on a loan. If the score is very low, then the interest rate is very high (and vice versa), so when it comes to a $20,000 unsecured personal loan, scores can make a significant impact.
Still, it is the debt-to-income ratio of the applicant that plays the most significant part in any approval process. The ratio stipulates that 40% of available income is the maximum that can be used to cover repayments. So, even when seeking loan approval without collateral, fitting repayments within that limit is what really matters.
The best way to ensure repayments adhere to the ratio is to clear at least some of the existing debt. This can be done through a small consolidation loan, and once achieved, approvals on large unsecured loans become much more likely.
Terms and Conditions to Consider
The absence of collateral can be countered by adding a cosigner to the application, and the positive consequences of this move have been mentioned above. But there are other terms to a $20,000 unsecured personal loan that should be considered too
The interest rate may be reduced greatly when a cosigner is included, but repayments can be further reduced by seeking a long loan term. For example, repayments on a $20,000 loan over 2 years would be around $850, but over 5 years would be $350. So, getting loan approval without collateral is not difficult if the right conditions and terms are agreed.
Also, the choice of lender can play a big part in securing approval on large unsecured loans. Online lenders are known to offer superior terms than traditional lenders, but because they are experts in lending to bad credit borrowers, approval is much more likely.
Subprime lenders, meanwhile, are more expensive, but repayment terms are very flexible and approval is practically guaranteed.