Poor credit won’t do any applicant any favors when it comes to looking for loans. Lenders are cautious in any case, so it’s only natural that they hesitate when considering a loan application from a borrower with bad credit. However, that does not mean that approval is impossible. In fact, you can even secure a $20,000 personal loan with bad credit.
What really matters to lenders is getting their money back, so a credit score that seems bad to us is actually not the most important aspect of a loan application. In truth, getting a loan approved depends more on issues like affordability.
But even with the minimal influence a credit score might have on a loan application, is a large personal loan, particularly one as large as $20,000, really a realistic goal for a borrower with bad credit? Actually, with the right approach, it’s not foolish to expect to get that kind of sum.
Why approval is possible
As already mentioned, the key issue for lenders is not what credit score an applicant may have, but whether the loan is affordable. It is true that when applying for a $20,000 personal loan with bad credit, there are additional concerns given the size of the loan being sought.
So what do lenders really care about? Well, income and job security are two very important aspects, and lenders clearly want to know if the applicant has the means to make the payments. This is why most lenders need confirmation that the applicant is employed full time and has been employed for a period of 6 months.
However, perhaps the most important thing to ensure loan approval is proof that repayments are comfortably within the budget of the application. This is where the debt-to-income ratio comes into play, with its 40:60 ratio meaning only 40% of income can be committed to paying down debt. With a large personal loan, the payments may be too high to fit into that limitation.
Collateral and co-signers
When the sum sought is large, the greatest help in getting approved is some form of security: collateral or co-signer. The reason is that while a small loan of $5,000 can be made without much hesitation, making a personal loan of $20,000 with bad credit puts the lender at risk of much greater risk.
By providing collateral, the lender is given at least something with which to obtain compensation in case the borrower defaults on the loan. But it also reveals an intention to commit to making the refunds, since the good offered as guarantee could be lost. Therefore, the chances of getting the loan approved are quite good.
A cosigner is perhaps a better option because it confirms that monthly payments will be made, even when the borrower is unable to make it. A co-signer is a guarantor and promises to intervene if there are any problems. With them included, securing even a large personal loan is almost assured.
Get the right lender
Finally, making sure you approach the right lender is an important part of getting a $20,000 bad credit personal loan. For example, a traditional lender is highly unlikely to give the green light, so it’s arguably a waste of time to approach them.
A much better option is online lenders, who are recognized specialists in making loans to applicants with bad credit. They offer loan offers that are tailored to the needs of this niche market, so the repayment term is longer to ensure lower monthly repayment amounts and therefore affordability.
Of course, getting approved for a loan is never guaranteed, but these lenders are much more accommodating, dramatically increasing your chances of getting a great personal loan, and most importantly, on good terms.
