Post-Bankruptcy Personal Loans: What To Expect, and How They Benefit You

Without doubt, being declared bankrupt brings with it a number of negative consequences. It is not just that your credit score plummets, but that the chance to recover financially is hampered for as many as 2 years. But some lenders do offer post-bankruptcy personal loans, allowing bankruptees a faster route to credit recovery.

It may seem strange that any lender would be willing to grant a loan to applicants who have only recently come out of bankruptcy. But actually, applicants seeking loan approval with poor credit histories are statistically less likely to default on their loan because they are hungry to recover a strong financial position.

And in any case, when an applicant has no debts to his name, but a source of income, then it makes sense to grant them a personal loan, provided the repayments are proven to be affordable. So, what needs to be done to get one of these loans?

The Reality Check

It would be foolish to think that just because it is available, getting a post-bankruptcy personal loan is easy. As with all loans, there is a need to qualify, and with lenders extremely cautious when considering former bankruptees, it is important to be realistic about approval chances.

A key part of this process is understanding the reasons for your bankruptcy in the first place. While income and employment are important, lenders also want to be sure that the applicant will not make the same mistake again. The chances of getting approval with poor credit histories are much higher when the past is left behind.

Thankfully, lenders these days are willing to accept the bad luck that can leave a financial reputation in tatters. The economic difficulties of recent years has had just that effect, so bankruptcy itself is not the stigma it once was, ensuring a personal loan is within reach to the right applicants.

Bankruptees Are Debt Free

There is another reason why some lenders are open to the prospect of granting post-bankruptcy personal loans. Anyone who has recently ended their term as a bankruptee (usually 2 years) is returning to the credit world without any existing debts.

This fact means that lenders can rely on an excellent debt-to-income ratio, and that the financial pressure created by the loan repayments will be minimal. The debt-to-income ratio states no more than 40% of available income can be used to make loan repayments. But since there are no existing debts, the full excess income can be committed to what may be a small repayment sum.

This makes getting approval with poor credit histories very likely, though it is important to stress that having current financial means is crucial to approval too. As long as the repayments are comfortably within the 40% limit, then there is practically no reason to reject the personal loan application.

Qualifying For A Loan

Qualifying for post-bankruptcy personal loans comes down to meeting some strict criteria. For a start, the loan size is staggered in relation to the time since bankruptcy was declared. So, it may be okay to get a $5,000 loan after 2 years, but impossible to get one after 6 months.

Some online lenders are willing to grant a $3,000 after a year, but current employment status and income size are important considerations. Getting any loan approval with poor credit histories is going to be a challenge, but there are some ways to make it more likely.

For example, for any sized personal loan, offer some collateral as security. That way the lender is assured for some compensation should the borrower default. Alternatively, find a cosigner to act as a guarantor. However, a good move is to apply for a small loan first, and begin to rebuild your credit history with the minimum amount of pressure possible.

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Post Bankruptcy Personal Loans: Fast Approval Despite Bad Credit Histories

There is a school of thought that bankruptcy is effectively the end of any kind of credit deal. Traditional lenders certainly are reluctant to lend money to anyone who has been declared bankrupt at least 2 years prior to an application. But it is possible to get post bankruptcy personal loans.

The logical behind the thinking is fair, with lenders entitled to be cautious about approving applicants seeking approval with poor credit histories, but it is worth noting that bankruptcy does not mean an end to income and financial responsibility.

What this means is that receiving personal loan repayments is still possible, especially when the specific hardship which prompted bankruptcy proceedings has been overcome. And if this is the case, the lenders can still feel confident in granting loan approval.

The Truth of Your Situation

But how can someone that has been declared bankrupt not find themselves avoided by a lender, whether they are traditional lenders or online lenders? Knowing the truth of the bankruptcy situation is the key. Once this is understood, the route to a post bankruptcy personal loan is clearer.

The lending world has a vast variety of lenders in it, and there are some lending firms that specialize in post bankruptcy loans. In fact, given that such applicants have no existing debt to figure into the equation the chances of default are extremely low. For that reason, approval with poor credit histories is plausible.

Also, lenders are willing to accept that bankruptcy was likely the only way out of an impossible financial situation.

Recent years have seen the number seeking bankruptcy increase, so it no longer reflects terribly on a personal loan applicant.

The Significance of the Debt-To-Income Ratio

So, what is the fuss about not having existing debts anymore? That question might seem strange, but the explanation is pretty straightforward. Like any other loan, a post bankruptcy personal loan needs to fit within the debt-to-income ratio set by the lending industry.

The ratio states that a maximum 40% of available income can be used to repay debts. But since there is no existing debt, that means the repayment sum each month can be quite high. This automatically means that, even with a large loan, getting approval with poor credit histories is easier.

For example, if an applicant earns $4,000 per month, then the maximum to commit to repaying loans is $1,000. With no other debts, it means the repayment on the personal loan can be $1,000, thereby making a 3-year loan of around $30,000 affordable.

How To Qualify

It is worth noting that post bankruptcy personal loans are staggered according to the period of time that has elapsed since the ruling was made. So, it is extremely difficult to get a loan 3 months after being declared bankruptcy, but not so difficult after 2 years.

However, loans of perhaps no more than $3,000 are available for the first 12 months, and after that $5,000 up to $10,000 can be secured. Of course, getting approval with poor credit histories is never guaranteed, but collateral can make a huge difference.

However, it is advisable to take out small personal loans as soon as possible because repaying them allows the borrower to begin to rebuild their credit rating.

Also, getting approval is easier when a clean break is made. So, close your bank account and open another, switch credit card companies and do not forget to look closely at what your mistakes were in the past to avoid committing them again.

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