While there are a lot of loans for people with bad credit available, it’s important to remember that like with all things, they do come with a cost. Loans for people with bad credit are considered high risk loans for a variety of reasons. While bad credit lenders have these loans readily available, they realize that the borrowers may have a history of not paying bills, defaulting on loans, or making late payments. For these reasons lenders take some precautions for high risk loans. The main disadvantage to high risk loans is higher interest rates. High Risk Loans are not the only type of loans that charge interest based on your credit. With pretty much any type of financing the higher your credit score is, the less interest you’ll be paying.
What are High Risk Loans?
High risk loans are loans that lenders make to people that have bad/low credit scores and have a higher risk of defaulting on their loan. The more likely a borrower is to default on their loan, the more risk is assumed by the lender. High Risk Loans often have a negative connotation to them but high risk loans are actually a good thing in most situations. They allow people with bad credit to have the ability to seek loans and get extra funds when they need it to help them when they’re struggling. Since most banks don’t want to lend to people with bad credit, high risk loans from bad credit lenders are usually the only options available to them.
High risk loans generally aren’t for very large sums of money. Most lenders will lend up to $1,500, but on the flip side you have the option to get as little as $100 in some cases. This can be seen as a positive or negative. Since most high risk loans are sought because they need the money very fast to hold them over until they get paid, they’re not for large amounts. If you are in a position where you need a larger sum of money and have bad credit, you may consider looking into a secured loan.
Types of High Risk Loans
There are several types of High Risk Loans for people with bad credit. Whichever one you choose to apply for, they are all great ways to get funds when you need it. And by applying online you’ll save yourself tons of time because you don’t have to deal with a bunch of documents to sign and mountains of paperwork.
- Unsecured Personal Loans: These loans are available for people with good and bad credit. They are seen as higher risk than secured loans because the borrower isn’t providing any form of collateral to secure the loan. If the borrower has bad credit that adds to the risk tremendously. Unsecured loans have higher interest rates than secured loans in general, so when you add in the fact that the borrower has bad credit that causes another slight increase in the interest you’ll be paying. But if you don’t want to risk losing your personal belongings with a secured loan, unsecured personal loans are a great alternative.
- Payday Loans: These high risk loans are extremely popular due to the absence of a credit check most of the time. Payday loans are small loans that are to be repaid on your next payday. In exchange for the lender giving you the money, you must pay back the principal amount plus whatever fee they charge for the service. Generally payday loan fees aren’t terribly expensive so you don’t have to worry about selling your home in order to repay your payday loan.
While there are more high risk loans out there, these are a couple of the most popular types. Both cater to people with bad credit which is a big part of what makes them high risk. But the ability to get a loan even with bad credit is a great option, especially if you’re struggling to make ends meet.