Bankruptcy does not have the stigma it once did. In fact, lenders are even willing to grant post-bankruptcy personal loans as soon as a year after the ruling. But are these loans worthwhile?
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.