The challenges thrown up by the current economic climate has resulted in a negative outlook. Where once people believed they had a good shot at securing a personal loan, they now believe there is little chance. The reason? Their bad credit rating. But personal loans of $5,000 are still within their grasp.
The fact that someone has a bad credit rating has never been enough for a lender to reject an application; there are more influential factors that come together to cause that. And while traditional lenders, like banks, have been reluctant to approve personal loans with bad credit, the rise of the alternative loan sources means that securing such a loan is possible.
Still, no-one is willing to lend money for nothing, and there are factors that every applicant needs to be aware of. From the effect that bad credit ratings can have on interest rates, to the key criteria required to secure personal loan approval, making a successful application requires making the right moves in advance.
Why a $5,000 Loan is Needed
One of the least considered aspects of a loan application is the reason for the loan. When it comes to personal loans, lenders like to know the purpose of the funds. By definition, the funds can go to any number of things, but the more responsible the purpose the more likely approval is.
For example, a loan to clear existing debts is something that a lender is more open to supporting than a loan to finance a round-the-world adventure, especially when bad credit is a factor in the equation. Personal loans with bad credit are often limited to constructive or emergency purposes.
So, personal loan approval is much more likely for emergency medical expenses that crop up, the payment of school fees or funds to clear an existing debt.
The Role of Bad Credit Ratings
A bad credit rating does not mean an application will be rejected, but it does have a bearing on the decision. This is because it dictates the interest rate to be charged, and with something like a personal loan of $5,000, it can mean the monthly repayments are simply too high.
What is more telling is the debt-to-income ratio, which is set at 40:60. This means that a maximum of 40% of the available income be used to cover repayments, leaving a buffer sum to deal with other expenses. When it comes to any loan, not just personal loans, lenders will adhere to this ratio.
What this means is that as long as your debt-to-income ratio is sufficient, regardless of your bad credit rating, there is every chance of gaining approval.
Wherever the loan source is, there are some key criteria that need to be met. After all, personal loans of $5,000 cannot be given to just anyone. For a start, applicants must be over 18, and must be either a US citizen or have a permanent residence visa for the US. A third is that they be in full-time work for a minimum of 6 months, while confirmation of income is also necessary.
Lenders offering personal loans are quite stringent on these matters, since they are taking a risk. So, failure to meet any of these conditions will mean immediate rejection.
But once these boxes are ticked, the debt-to-income ratio confirmed and the calculations of total monthly repayments are made, loan approval is certainly possible.
Bad Credit? You Might Still Get a Mortgage to Buy a House
Personal Loans to help Australians in need: FSO
Small business loans to help Aussie businesses through tough times