Personal Loans – Special Emphasis on Bad Credit Personal Loans

Before approving a loan application, the lender calculates the following two affordability parameters to make sure that the chances of repayment are not bleak:

1. Credit history, to ascertain the loan seeker’s past financial record as good or average or bad.

2. Debt to income ratio (DTI = Debts/Income), to compute the loan seeker’s current monetary position.

Depending on the above-mentioned calculations, the lender categorizes the loan seeker as: prime customer (person with a good credit record), near prime customer (person with an average credit record) or sub-prime customer (person with a poor or bad or adverse credit record).

A sub-prime client is further categorized to get a better idea of the hazards that he may pose – low adverse credit, medium adverse credit or heavy adverse credit. After this detailed evaluation and classification, the lender approves the loan application/amount and decides the loan terms/conditions.

Sub-prime loan seekers can avail credit support under the ‘bad credit personal loans’ category. Available in both secured and unsecured form, this special personal loan sub-category helps people bring their lives back on track.

For obvious reasons, prime and even near-prime customers can negotiate for a favourable loan deal. But, sub-prime customers have to settle for high APRs, and stringent loan terms and conditions. Still, secured loans are more gainful and are generally easier to get as compared to unsecured loans.

Secured bad credit personal loans, the best solution for homeowners and property owners, are comparatively safer for the lenders, as they are availed by pledging collateral. As a result, there are chances that the loan seeker may get a less stringent loan deal.

But, unsecured bad credit personal loans, probably the only option for those UK residents who are incapable of offering collateral, are risky for the lenders, as they are availed without pledging collateral. As a result, the creditor cannot afford to offer a flexible loan deal.