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Personal Loans With Bad Credit: Why Applications After Rejection Are Stronger

May 24, 2012 | Comments: 0 | Views: 161

It is tempting to believe that once a loan application is rejected, there is little point in applying again - but it would be a mistake to believe so. After all, when it comes to securing personal loans with bad credit, and especially unsecured loans, the challenge is in formulating the application.

In truth, an application already rejected does not do applicants any favors when they approach another lender, but rejection itself does not mean an entitlement to a loan is rejected. When seeking approval on personal loans with bad credit there are some special steps that should be taken and, if they are not, then rejection is no great surprise.

The key aspect of any application is to make sure what the lenders want to see is included. Sometimes rejection is needed before this is realized.

How Rejection is a Good Thing

All applicants try their best to ensure their application is successful, but sometimes it is only after an attempt to secure a personal loan with bad credit fails that the perfect application can be formulated.

This point becomes clear through an example. Take an application for a personal loan of $30,000 over 36 months which has been rejected on the basis that the income of the applicant ($5,000) is too small. Repayments of $750 per month might seem okay, but the 40:60 debt-to-income ratio means the applicant only has $500 spare each month to meet repayments.

Knowing the reason for the rejection then allows the applicant to reformulate his application. So, instead of seeking the loan over 36 months, he seeks one over 60 months, knowing that the repayments then fall to $500 per month. Or he might seek a lower sum of $20,000 over 36 months.

By fine tuning the application, the chances of securing personal loans increase.

The Bad Credit Factor

Bad credit is a factor that most lenders will take careful note of, but it is worth noting too that a low credit score is never the reason why an application for a personal loan with bad credit is rejected. It is the overall effect of the score that is the negative aspect.

Lenders use credit history to assess the risk factor associated with the applicant. If, for example, they defaulted on a loan at any time over the previous 2 years, then there is a higher chance they will default again. But the specific reason is also sought when assessing the application, and if it is not irresponsibility, the low score is less serious.

The specific score, however, is used to calculate the interest to charge. Typically, these loans come at higher interest rates that either secured loans, or loans to people with good credit scores. However, a very low score will have a higher rate again.

Meeting the Criteria

Obviously, meeting the set criteria is essential if an application for a personal loan with bad credit is to be approved. The basic list is that the applicant is over 18 years old, holds US citizenship or has a permanent residence visa, and has a proven source of income.

Often employment of 6 months or more needs to be confirmed for a loan application to be considered at all. Once all of the criteria is satisfied, and the application is deemed realistic, then the loan is the likely outcome. But if it fails, find out why and try again.

Sarah Dinkins is a financial advisor who writes about Guaranteed Unsecured Credit Cards and 100% Guaranteed Bad Credit Loans

Source: EzineArticles
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