Most customers’ first choice while in need of desperate cash is to approach the traditional banks for personal loans. However not many are aware of the procedure the bank follows once they receive a loan application, in the name of background check. It is not just a check of the authenticity of the documents provided and the income proofs. But it includes a simple Credit history check.

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Credit History:

Most borrowers are unaware of the term Credit history which is something a bank maintains to decide upon its risk of lending money to the said borrower. Most traditional banks will reject a loan application based on bad credit history. However, recent financial upheavals in the world market have woken up the banks to the fact that even good customers may have a bad credit history due to sudden loss of jobs. This doesn't necessarily mean that the customer will default on a loan. Nevertheless, the credit score remains a strong indicator of the possibility of loan approval. The other factor being the repaying capability of the borrower through strong income proofs and debt to income ratio.
Interestingly, a customer who has borrowed often and repaid all his loans on time holds a better score than a customer who has not applied for a loan often.  What this means is that credit score is an assurance to the bank that the customer is risk free and they stand a chance to recover their money.

Bad Credit Loans:
Having said this, does this mean that a bad credit history will close all doors for the borrower? The answer to that lies in bad credit loans (, which is the banks readiness to provide loans in spite of the bad credit. The banks are aware of the high risk involved and they account for the high risk factor by doing the following:

  • Increasing the interest rates
  • Capping the loan offered to a lower amount or
  • Asking for a collateral
  • Asking for a co-signer.

A bad credit history loan thus is a second chance given to a borrower. In return the borrower ends up with a higher interest rate on repayment. The loan approval is easier if the borrower can provide a co-signer with a good credit history.
In conclusion, the presence of multiple banks ensures that one unfortunate missed repayment doesn't affect the overall lending for a customer.  Rest assured there would always be someone ready to give you a loan if you need one.

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