There is plenty of advice available to those looking to submit a loan application, recommending how best to get the best deals and secure approval. And while this advice is useful, there are some factors that are rarely mentioned that could prove very valuable when it comes to seeking long-term loans with bad credit.
Most bad credit borrowers apply for modest loan sums to be repaid over short and medium terms. But when seeking larger sums to be repaid over a longer period of time, securing approval with poor credit scores can be a bigger challenge.
The reason is pretty simple. Basically, a long-term loan suggests a longer period within which a loan might be defaulted upon, so the risk involved is perceived by the lender to be greater. This can result in higher interest rates, and tougher approval conditions.
But there are some lesser-known points that should be considered if not just rejection, but financial disaster is to be avoided. Here are just 3 of them.
1. Offer Collateral If Possible
Many people would prefer to seek an unsecured loan on the basis that putting some item of value up as collateral means risking losing that item should the loan be defaulted upon. But securing long-term loans with bad credit is much easier when collateral is provided.
Collateral is a form of security for the lender, providing a source of compensation in the event the borrower is unable to make the repayments. The result to providing it is that the interest rate charged becomes lower, which immediately makes the loan more affordable.
When securing approval with poor credit scores,it is essential that everything is done to prove that the repayments are affordable. And while a long-term loan should mean lower monthly repayments, the addition of collateral should be enough to assure approval.
2. Options For Homeowners
Homeowners have an advantage over the rest of us in that they usually have substantial home equity to use as security. Again, sometimes the borrower does not want to put their property at risk unnecessarily, but a HELOC is a viable compromise for those seeking long-term loans with bad credit.
Its full title is the Homeowners Equity Loan Contract, and it allows a homeowner a line of credit which is granted by the lender against an agreed share of the equity that exists. So, a maximum sum is granted, but interest is only paid on the actual sum spent by the borrower.