With the recession that has been going on for the last few years, many Americans are finding it a real challenge to meet everyday living expenses. Dealing with the unexpected extra expenses that can come along at any time is almost impossible. It means that the need for a cash injection is often needed, so loans are an essential resource. A $20,000 unsecured personal loan, for example, would be a God-send.
The great advantage with this loan option is that no collateral is required, as the loan is unsecured. But this can create other problems, with the task of securing approval without collateral that little more difficult than with it. The good news is that approval is certainly not impossible.
Even with bad credit ratings, there is every possibility that unsecured personal loans, even large ones, will be given the green light. But to improve the chances of approval as much as possible, the application itself needs to be well structured and strong.
Why Credit History Means Little
Perhaps the most pleasing factor when applying for any kind of loan is the knowledge that the credit history of the applicant is not really that influential in the approval process. This means that even with poor credit ratings, a $20,000 unsecured personal loan is still very possible. However, the credit score does have an influence over the interest rate to be charged.
Interest rates are chosen based on the perceived risk of the borrower defaulting on the loan. Though not particularly accurate, the credit score is what lenders go by, with good scores (700) ensuring the interest rate charged is low. A very poor score (450) would see a very high rate charged. Seeking approval without collateral could also see the rate increase.
With high interest rates, the lender may calculate that the unsecured personal loan is not actually affordable, and therefore reject the application. However, it is not the credit score that matters in the calculation, but other factors that have the decisive influence like income and the debt-to-income ratio.
The Loan Term
The term of a loan is also a telling factor, especially when it comes to applying for large sums without any collateral, like a $20,000 unsecured personal loan. This is because, with income the only source of repayment, borrowers have to concentrate on meeting a strict repayment schedule every month.
With high interest rates, the repayment sum might be quite high, thus making sure there is a considerable amount of pressure. However, the pressure can be alleviated by lengthening the term of the loan. If this is done, the principal owed is spread over a greater number of months, thus lowering the required monthly sum, and improving the chances of approval without collateral.
For example, a $10,000 loan over 2 years (24 months) means monthly repayments of around $450. But over 5 years (60 months), the repayment is lowered to around $175. The drastic fall in outgoings makes the unsecured personal loan much more affordable.
Find the Right Lender
A major part of the getting approval on a $20,000 unsecured personal loan is finding the right lender with the best terms and conditions. Traditional lenders tend to have strict policies and charge higher interest rates, but online lenders are more accommodating to the needs of bad credit borrowers.
Getting loan approval without collateral is also much more likely because it is common to get loans with no credit checks. And even with large unsecured personal loans they are more flexible with regards their repayment schedules.