For most of us, bad credit is something that we just have to live with. Unlike many urban myths, however, it does not mean an end to loan approval and years spent in the financial quagmire. It is still possible to get an installment loan with bad credit, and provided everything is in order, even a large loan at that.
What is most important is the terms that are secured, and whether they make the loan affordable or not. Affordable loans are much more likely to be approved, because the lender recognizes the ability of the borrower to pay without problems. For example, with a long-term loan, approval is easier because the monthly repayments are lower.
However, it is important too that the right terms be accepted, not simply the first loan package that is offered. An installment loan, like any other loan, needs to be repaid and the borrower needs to adhere to a set repayment schedule. So, identifying the right loan is essential monthly installment loans no credit check direct lenders .
What is an Affordable Loan?
This is a question that has more than one answer, because it depends greatly on the situation the applicant is in. What is certain is that a bad credit score is not enough to deem a loan affordable or not. It is other factors that decide this, such as the interest rate, available income and the debt-to-income ratio. Before applying for an installment loan with bad credit, it is a good idea to consider these.
Bad credit does affect interest rates, with low credit scores translating to high interest rates. This then means a slightly higher monthly repayment sum, but the margin of difference is not huge. With a long-term loan, approval is more likely because the principal sum is divided into more monthly shares, so the repayments are significantly lower.
The income is important because it confirms there is an ability to repay, but the debt-to-income ratio confirms whether the repayments on an installment loan are affordable or not. Any new loan that pushes the share of income committed to debt repayments over 40% will be rejected.
Setting Things in Order
With these facts in mind, there are two key steps that should be taken to aid in securing an installment loan with bad credit. The first is to improve the credit score, and the second is to establish an extended loan period. Through both of these, the chances of getting approval are increased dramatically.
Improving the credit score can be accomplished by taking out a series of small unsecured personal loans and using them to gradually repay the existing debts. For example, a $1,000 payday loan can be used to clear an outstanding credit card balance. When that debt is cleared, the credit score is adjusted and improved.
Long-term loan approval, meanwhile, means a smaller monthly repayment sum. For example, a loan of $20,000 repaid over 3 years can cost as much as $600 per month, but over 10 years could cost just $180. The lifetime of the installment loan is, therefore, important.
Find a Cosigner
Finally, it is a lot easier to get the green light on an installment loan with bad credit if a cosigner is included in the deal. A cosigner is someone who can guarantee a lender that payments will be made even when the borrower is unable to make them. With this kind of assurance, lenders lower the interest rate charged.
However, the cosigner needs to have a very good credit history and a debt-to-income ratio that can accommodate the extra monthly repayments. But with a long-term loan, approval is more or less assured as the repayments are low anyway. That, with a high credit score, makes the installment loan affordable and easier to secure.