What are the high-risk loans?
High-risk loans are credit options available to people with poor or fair credit scores, which would disqualify them from traditional loans.
There are three categories of high-risk loans namely merchant cash advances, short term loans, and high-risk personal loans. We shall discuss further as to what a high-risk loan is.
A high-risk loan is an unsecured loan. It can also be termed as a loan option given to customers most likely to default. Compared to other conventional loans, high-risk loans have high-interest rates that act as a mitigation measure against risks that come with making loans to people with bad credit.
With the high interest, even when you don’t pay back the loan, the interest paid on that loan either make up for the losses or cushions them to a certain degree.
What is a high-risk lender?
A high-risk lender is one who gives or facilitates the financing of high-risk loans to people who have a high likelihood of default. It might be an individual or a lending company, willing to offer loans to those who have attained a high-risk borrowing status.
High-Risk Loans are Unsecured Loans
High-risk loans are unsecured loans in that one is not required to produce anything as collateral. No guarantors are required nor personal assets such as your property, house, or car.
With these types of loans, high-risk lenders either grant or deny your loan based on your credit history, income, etc.Are you a high-risk borrower?
You’re a high-risk if the lender considers you as more likely to fail to keep up with the loan repayments. High-risk borrowers share some universal traits, which include:
- Low credit score: Your credit score is one of the tools that a lender or creditor will use to measure your creditworthiness. If your FICO Score falls below 620, then you might be termed as a high-risk borrower.
- Employment status & stability. For instance, going several months without a job or working part-time.
- Not having enough cash for a down payment in the case of mortgage loans from banks. With unsecured loans, you don’t require any downpayment.
- Late and overdue bills: It might indicate that you are fond of dodging your financial responsibilities.
- Having a history of making late payments on prior loans.
- Keeping your credit card balances close to their limits, which indicates a high credit utilization.
- Frequently applying for loans that require hard credit checks.
If most of the above-mentioned patterns apply to you, you might be a high-risk borrower.
Why choose a high-risk loan?
One might opt to apply for a high-risk loan if he or she has a bad credit score which may disqualify them from accessing other conventional credit options. You should also monitor your credit scores throughout the year to detect errors, fraud, etc.
High-risk loans have higher interest rates compared to other loans. Before approaching a financial institution be well prepared to pay these high rates and plan accordingly for the repayments.
Alternatives to High-Risk Loans
You might want to consider other options before committing to high-risk loans from alternative lenders with high finance charges. Some of the options available to you include peer-to-peer lending. It’s where you seek loans from your peers at work, from your social connections, or online from people you don’t know personally. Other avenues that you can try are looking for a loan co-signer for bank loans or borrowing from your family and relatives.
Advantages and disadvantages of high-risk loans
|Shorter loan terms of up to 24 months.
Easy approvals and simple application process.
Bad credit will not adversely affect your chances.
You don’t need to produce anything as collateral
|More expensive due to high interest rates than normal.
Defaults or late payments will lower your credit scores further.
Offers a lower loan amount than personal loans from banks.
High likelihood of getting accepted might cause borrowers to misuse them.
Where to apply for a high-risk loan?
There are several online loan companies that offer loans to high-risk borrowers. With good research, you should be able to get the best company that you qualify to get a loan from and whose conditions you meet.
Nation21 has eliminated the need for research by offering loan matching services. Simply fill out a loan request on your site and get matched to high-risk lenders.
Applying does NOT affect
your FICO® credit score!