Wednesday, May 9, 2012

Personal Loans With Bad Credit: Why Guaranteed Approval Is Impossible

The lending industry is a highly competitive one, something that is understandable when we consider the demand consumers have for extra funds. The problem is that, in an effort to attract as much business as possible, many lenders are willing to make promises that cannot be kept, like stating that approval is guaranteed for applicants seeking personal loans with bad credit.

The idea of guaranteed loan approval is comforting to people seeking loans but who are unsure of their chances of approval. But while elements within an approval process might be cut out to speed things up, the ability to repay a loan needs to be proven. This fact alone means there can be no universal guarantee given to applicants.

Unfortunately, there are many lenders - especially online - who make promises that border on a lie. So, getting a personal loan from them can prove more troublesome than anything else. Be sure to check with the BBB website for their background, but remember that there are logical aspects to consider too.

No Credit Checks Are No Guarantee

Many people believe that no credit checks during a loan application is the same thing as getting a guarantee that an application will be approved. Sadly, this is not the case. The only advantage it provides is in improved the chances of applicants for personal loans with bad credit getting approved.

Removing the process of checking out credit histories simply saves time, and is a key reason why many online lenders can provide approval judgements in just a few minutes. But a guaranteed loan approval is a different matters, and foolish when the repayment habits of the applicant is not known.

What all applicants must realize is that there are still conditions relating to income and the amount of existing debt an applicant has. To this end, the debt-to-income ratio is more important, and it has a direct effect on the chance of a personal loan being approved.

Forget the Marketing Garb

There is no shortage of marketing flyers around promising everything that a consumer would want in a loan provider. From low interest rates to high loan limits, there is also the promise of guaranteed application success, even when looking for a personal loan with bad credit.

But it is important to know that this kind of marketing garb needs to be taken with a pinch of salt. For example, the promise of super-low interest rates makes no sense if the lender makes no profit. The the small print in any loan agreement usually reveals hidden fees.

Guaranteed loan approval cannot make sense, when it means that applicants with no income at all could be granted personal loans. And giving a loan to someone who is unable to repay it is very bad business.

Security and Income

The biggest issues that lenders have when considering applications from people seeking a personal loan with bad credit are the income the applicant has, and if any security can be provided. Security, whether in the form of collateral or a cosigner, certainly makes things easier.

However, there is no guaranteed loan approval because, even with collateral, the lender prefers to receive repayments. Receiving payment every month keeps things simple, as items of collateral need to be sold to convert them into cash. This is why a cosigner is a far better option.

But even with a consigner, an applicant needs to show an ability to repay the personal loan. The cosigner is only a back-up, and the borrower is the key component.

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