Requirements For Bad Credit Personal Loans
Author: weissheiss
Unlike other loans, the requirements for bad credit personal loans may be somewhat more stringent in areas other than credit. Each lender offering these type loans may require something different, so the borrower needs to be aware of the different requirements that may be bestowed upon those with credit issues.
Employment history
The first thing a lender wants to know for any borrower is whether he or she has a stable employment history. A lender is not going to take a risk with a borrower who changes jobs frequently even for a borrower who has perfect credit. For those who are seeking personal loans, this becomes more important. The lender wants to be certain the borrower has a way to repay the loan, especially in the case of a default where the lender may need to seek the assistance of the legal system in order to collect the money that is owed. If the credit history is good, a lender might consider someone who has changed jobs frequently to better his financial position, but for those with bad credit, a stable employment history provides more leverage for approval of the loan.
Income
In addition to stable employment, the lender makes to be assured that you have enough income to repay the loan. Using a formula called the Income to Debt Ratio, a lender will determine how much of a percentage he is willing to allow before the new loan payments are calculated. For bad credit loans, this ratio is going to be lower than what is allowed for customers with good credit. This is because the lender looks at the previous credit problems and doesn’t want to put the borrower in a situation that will strain his budget.
Shorter repayment term
In some cases, a lender will ask for a shorter repayment term. At first glance, this doesn’t seem practical because if someone had credit problems, it seems it would make more sense to make the payments as low as possible. What the lender wants to see by offering a shorter repayment period is that the borrower is going to make the effort to repay the payments. The lender has already determined what he feels the borrower can afford to pay monthly, so he will not overburden him even if it means loaning less money than what was originally requested.
Guarantor
Another option offered by lenders is the use of a guarantor. The qualifications are set by the lender, and in some cases, the guarantor must have a higher income than the borrower. Many lenders also want the guarantor to be a family member rather than a friend or co-worker. Because the guarantor is equally responsible for the repayment of the loan, he must meet the same credit criteria as other borrowers.
In most cases, a lender will not consider a guarantor who has questionable credit. The lender wants someone who is stronger than the borrower, and someone they can feel reasonably sure will make certain the loan is repaid. Someone who already has good credit is not going to risk their own credit even if it means making the payments themselves.
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