How To Get Approved For A Bad Credit Loan
Bad Credit Loans > Bad Credit Loan Articles > Article: How To Get Approved For A Bad Credit Loan?Bad credit should not keep you from getting the financing you need. While your credit score is certainly considered during the financing application process, your credit rating is not the only thing the lender will consider. If your credit score has been damaged by previous financial circumstances, but you have a steady (and verifiable) income and assets of value, you can still get competitive financing offers. In fact, there are even bad credit loans available for borrowers who do not have loan collateral or verifiable income
Bad credit loans fall into two main categories: secured and unsecured. A secured bad credit loan is a loan in which the funds are secured by collateral, such as a mortgage, auto loan, or payday loan. Collateral can include a car, house, investments, cash, or other items of value. An unsecured bad credit loan, on the other hand, is a loan for which the borrower has no collateral. These bad credit loans often carry higher interest rates and less favorable terms than secured bad credit loans.
Lenders approve loans based four main factors:
- The borrower's ability to repay the debt (income)
- The borrower's available assets (does the borrower have possessions of value?)
- Whether the borrower is a financial risk (credit rating and file)
- The collateral the borrower will use to secure the loan
The lender will consider each of these factors when deciding whether to approve you for a loan. While bad credit will certainly affect the lender's decision, it is not the only criteria by which you are judged. Solid, verifiable income and collateral for the loan can go a long way.
What Do I Need to Apply
Documents required may vary from lender to lender; however, these documents are universally requested and will most likely be necessary for loan approval:
- The borrower's two most recent pay stubs
- Group certificates from the previous two years
- An employment verification letter from the borrower's employer detailing their income for the previous two years and the borrower's total length of time on the job
- Bank statements for all of the borrower's checking and savings accounts
- Documents detailing any investments such as term deposits and managed funds
- Personal loan, credit card, and charge cards statements from the previous six months
- Life insurance policy documents
- An asset worksheet detailing the value of the borrower's assets (furniture, jewelry, cars, etc.)
Self-employed borrowers will also need to bring the following documents:
- Tax returns from the previous two years
- Profit and loss statements
- Tax liability statement
Tips to Get Approved
Even if you have bad credit, you can improve your eligibility for financing by following these simple tips:
- Pay all of your loan and credit card payments on time
- Make more than the minimum payment whenever possible
- Do not make late payments
- Submit proper documentation of any additional income such as rental income, bonuses, or other reimbursements
- Close liabilities in your bank statement prior to applying
- Consider using your home, car, or other possessions of value as collateral for the loan
- Do not apply for multiple financing offers at once. Inquiries can actually hurt your credit score and prevent you from getting approved
- Know what is on your credit report and be prepared to address any adverse items. Be sure to keep receipts for any credit card settlements as evidence that the debt has been settled in full.
A borrower with less than perfect credit will have to pay higher interest rates on their loans. They will also face greater scrutiny from lenders, and may be required to submit more documentation to verify their ability to repay the new debt. A borrower with bad credit may also need to secure their loan with collateral - or may choose to take out a secured loan in order to get a more competitive interest rate.
Still, understanding what lenders are looking for when approving bad credit loans will improve your odds of success in obtaining financing. Prior to applying for any loan, you should be familiar with what documentation you will need to provide, what kind of questions to expect on the application, and what you will need to verify your identity. If you are armed with knowledge and insight prior to applying, you will find the loan application process to run much more smoothly.
What to do next
Finance Comparison lists a number of highly competitive bad credit loans that you can apply for online. Simply compare rates, terms and apply online.
