Lenders are not known for their generosity. They have this curious belief that they should make a profit out of lending money. But it is true that lenders take risks when lending out money. And they are willing to approve loans up to $20,000 to those of us with bad credit.
You would think that it would make no sense at all for a lender to approve a $20,000 unsecured loan to you with your poor credit history. Just remember that your credit score is not as big of an issue as you imagine. Your past credit history is not as big of a risk to the lender at you may think. Income and debt-to-income ratios are what gets you approved for large loans.
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Your loan application needs to prove that you have the capacity to repay the loan without missing or late payments. This is especially true for large loans since the lender will lose more money should you default.
What Really Matters
Lenders have concerns with every borrower. You have to satisfy the lender that you can meet those concerns, despite any bad credit history, when applying for a $20,000 unsecured loan. You may have had trouble paying off debt in the past and it is reflected in your bad credit history. However, the lender is focusing on whether you can pay off the loan in the future. This simply means you need to have enough steady income coming in.
The first requirement when working on meeting the concerns of the lender is to establish that you have a reliable source of income. Once you have established that, it only comes down to affordability.
Affordability is measured by your debt-to-income ratio. This is an easy calculation. Take your take-home income and subtract all your monthly expenses. Multiply that amount by 40% and that is the maximum loan payment you are allowed. Find a lender who can approve you for the $20,000 with terms that fall below that number and you are well on the road to approval, even with bad credit.
Reality
The debt-to-income ratio protects you from borrowing more than you can afford to repay. It allows you to keep a 60% monthly reserve to deal with the unexpected expenses. Unfortunately, $20,000 is a lot of money to borrow and it can be hard to negotiate terms that fit within the 40% limit.
Large unsecured loan approvals come with higher interest rates. This is where your bad credit history hurts you. Also, the lender is lending out the money without any security. This means that a large affordable loan will have to have up to a ten year repayment term. That is a long time to wait for the lender to get the money back.
Lenders Are Out There
The right lender can make a $20,000 unsecured loan affordable to you. You have to be willing to look for that right lender. The internet is full of them. Choose carefully. Check out the lenders through the Better Business Bureau. When you find the right lender, be prepared to make the compromises they insist on. Once you do, the $20,000 unsecured loan should be approved.
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