Many people who are facing insurmountable debts bow to the pressure to declare bankruptcy. It is not an ideal solution, but unfortunately, economic reality makes it the only practical choice. But the good news is that getting personal loans after bankruptcy is now more likely, with more lenders willing to accept the role that circumstance played in the decision.
This is a very different situation to a few decades ago, when declaring bankruptcy left a serious stain on a credit reputation, causing many traditional lenders to steer clear of such applicants. Getting a loan shortly after bankruptcy was almost impossible, but today it is a very real possibility.
With that in mind, the option to take such lengths in order to escape from crippling debt is more common. The fact that loan approval despite bankruptcy is an option later on means it has become a strategic choice. But are future personal loan options not affected at all?
Justifying Loan Approval
Despite the reduced stigmatization that bankruptcy has today, there is little reason to celebrate it as an option. There is still some hesitancy amongst lenders to approve applications seeking personal loans after bankruptcy. But at the same time, there are benefits, not least the fact that financial pressure is alleviated.
But, what about when a new loan is applied for? What is needed to secure the green light and be granted approval despite bankruptcy? Well, like any loan application, it is affordability that really matters – not the credit history of the applicant. So, as long as the applicant has a full-time job and has a low enough debt-to-income ratio, approval is possible.
And the ratio should be no problem at all, since through bankruptcy the applicant will have seen all of his or her debts cleared anyway. That effectively clears the way to getting a new personal loan.
Terms To Accept
Having a route to much-needed loan funds is great to know about, but actually securing that loan is not a foregone conclusion. Applicants need to understand that the consequences of bankruptcy include making future loans expensive. Lenders willing to grant a personal loan after bankruptcy will also charge higher interest rates.
What this means is that the monthly repayments on any loan are going to be that little bit higher, which in turn raises questions over the affordability of the whole deal. But with no other significant loans to repay, the chances of being granted approval despite bankruptcy are pretty high anyway.
Also, the size of the loans are usually limited with some lenders not willing to go over $10,000, and only comfortable with about $5,000. The term of the personal loan is usually short too (5 years). This is because bankruptcy cannot be declared a second time for a minimum of 6 years after the first, and lenders want the life of the loan to end within that period.
Securing Loan Approval
So what are the best ways to help an applicant on the road to approval? There are a few ways to do so, but probably the most effective when seeking a personal loan after bankruptcy is to improve your credit score in advance.
This is usually done by clearing a few debts, but since loan applications might be hard to get, it would be worth taking out a secured credit card instead. The balance can be small, but regularly making repayments for 6 months means a positive credit history is achieved.
It would also be worthwhile getting a cosigner to guarantee monthly repayments on the personal loan. This reduces the risk involve in the loan to practically nil, so approval despite bankruptcy is safe.