It is understandable that people would think the last applicant a lender is going to approve is one that has only recently come through bankruptcy. No-one can be faulted for expecting it to be so, but the simple truth is that post-bankruptcy personal loans are not very rare at all.
Many lenders recognize the wide variety of reasons behind seeking bankruptcy, with bad luck one of the most common. Many bankruptees are honest borrowers that were caught out by economic circumstance, so as long as their situation has improved there is no reason to reject their application.
With this in mind, the chances of bad credit borrowers getting loan approval with poor credit histories are quite strong. After all, the bottom line is that any applicant seeking a personal loan needs to be able to make repayments over the duration of the loan. Therefore, credit histories are not really that important.
Bankruptcy: The Consequences
It may seem that filing for bankruptcy is the only practical solution to financial problems, and in certain cases this is certainly true. But there are consequences to making such a move when it comes to rebuilding your credit reputation. Without doubt, getting a post-bankruptcy personal loan is a useful way to begin that rebuilding work, but the terms will not be ideal.
The image that bankruptcy has is chiefly negative, though lenders will often recognize there was no alternative action to take. But they do get nervous when considering loan applications from bankruptees. After all, bankruptcy means that debts were written off but never fully repaid.
Seeking loan approval with poor credit histories is one thing, but with a proven history of escaping debt repayments, some lenders apply very strict terms to any new personal loan so as to cover the increased risk of default.
Establishing An Ability To Pay
The key to establishing an ability to make the required monthly repayments is to show that your source of income is dependable and your existing debt commitments are low. It is with the latter issue that those applicants seeking post-bankruptcy personal loans have an advantage over regular applicants.
Bankruptcy basically means that all existing debts are cleared, whether a percentage of that debt is paid or not. But while there may be some stigma over the unpaid share of the debt, the fact remains that these applicants have no debts to their name. And with no debts to worry about, the debt-to-income ratio is very strong, so getting loan approval with poor credit histories becomes easy.
With regards income, the applicant needs to show that they have a full-time job, and have held it for a minimum of 6 months prior to submitting the application. This is a straightforward requirement for most personal loan applications.
What Terms Should Be Expected
The terms that come with post-bankruptcy personal loans cannot be expected to be great. However, there are some factors that, if addressed, can help in getting the green light. For a start, your status as bankruptee will mean a higher interest rate is charged, but keeping the size of the loan application down can counter the over-expense.
Lenders place a limit on the loan sum available to bad credit borrowers and will expect collateral to be provided in exchange for approval with poor credit histories. Collateral needs to match the loan itself, but when seeking an unsecured personal loan, the limit can range from $5,000 to $10,000.
Also, getting a cosigner – someone willing to guarantee monthly repayments will be made – is another way to ensure approval and keeping the interest rate down.