You may have seen advertisements for payday loans, personal loans or other bad credit lending opportunities that promise easy money within hours. However, do those loans need to be approved by a lender or another third-party before the money is dispersed to a borrower? Let’s look at what the process is of getting a bad credit loan and whether they require lender approval.
No Credit Check Is Necessary
Bad credit loans are generally handed out to borrowers without a credit check being performed. While this means that a borrower can a get a loan regardless of his or her credit score, it also means that a borrower is going to pay a higher interest rate than what a bank or a credit card company may charge. On the other hand, it makes it easier to make a loan decision within minutes after a loan application is received.
The Amount That a Person Borrows Is Also Limited
Although some lenders are going to make it possible to borrower $10,000, $20,000 or even higher amounts of money, most bad credit loans are for less than $1,000. The amount of a loan is determined by the borrower’s history, their employment status and whether there are any other red flags that may scare a lender from giving a loan of more than $1,000. In this way, it could be said that there is an approval process that must be adhered to before a loan is granted. However, only the size of the loan is affected as opposed to whether or not an individual can get money.
State Laws May Impact How Much Someone Gets
State lending laws may make it impossible for an individual to borrow more than $1,000 at a time or to have more than a predetermined number of loans out at the same time. If such laws do limit what a person can borrow, the lender will be obligated to honor these laws and lower the amount that a person is approved for. Therefore, it could be argued that this may be considered part of an approval process for getting a loan even if the lender is not necessarily making that decision.
Lenders May Ask for Extra Collateral
A lender may ask for collateral or a cosigner in exchange for guaranteed loan approval. A borrower may be able to lower his or her interest rate by offering collateral or bringing a cosigner to the table when asking for a loan. Collateral is used to secure a loan because the lender can liquidate the collateral if the borrower defaults on a loan while a cosigner pledges to make payments on a loan if the original borrower defaults on the loan. Lenders may ask for collateral or a cosigner if the loan amount is for a large purchase such as a car or a home.
Approval May be Required for Long-Term Loans
We talked with TitleMax about long-term loans, and they said, “If a borrower wants to repay a loan over 30 days or more, it may be necessary to gain approval from a bad credit lender. Typically, a bad credit loan is paid off in 15 or 30 days when a borrower gets his or her next paycheck. However, short-term loans typically do not require any type of approval before the money is sent to the borrower.”
Will a bad credit loan require approval from a lender? The answer to that question depends on the borrower, the loan terms and any applicable state or federal lending laws that may impact how much a borrower can borrow or whether a borrower can borrow. The best thing to do is to ask the lender or talk to a financial adviser before deciding whether or not to get a bad credit loan.
