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Many banks refuse to lend money to persons who have bad credit histories. This can make it difficult for some people to get the personal loans that they need. If you have a low credit rating, though, you might qualify for a high risk personal loan.

What is a High Risk Personal Loan?

Personal loans are usually unsecured, which means that they are not backed by any collateral such as a car, house or property. Lending institutions might also refer to them as signature loans. They are specifically designed for people who represent high risk for the lending institution. If you have a history of failing to pay your bills on time or owe a lot of money to other creditors, then you might be able to get a high risk personal loan even if you do not qualify for other loans.

The Advantages of High Risk Personal Loans

The obvious advantage of a high risk personal loan is that you might actually be able to qualify for them. For some people, they are the final option that they have left. You can use the personal loans to pay off other debts or make necessary purchases. For instance, if you need to purchase car so you can commute to a high-paying job, then it might make sense for you to apply for a high risk loan.

The Disadvantages of High Risk Personal Loans

High risk personal loans often have high interest rates attached to them. Banks and lending institutions charge higher interest rates on these loans because they have to protect themselves from the risk that the debtor represents. If you have a history of failing to pay your bills on time, then the bank will worry that you will not pay them as well. By paying higher interest rates than people with high credit scores, though, you make the gamble worth it for the bank. DO NOT TAKE ON A HIGH RISK PERSONAL LOAN if you do not have a realistic plan for paying it back. Part of the impetus for the mortgage crisis was the fact that many predatory lenders did not do their due diligence to make sure borrowers would be able to repay the loan before approving. Don't trust your lender to do this for you. Also beware of balloon payments, large payments that will suddenly become due at a later date. If there is one in your loan, make sure you are prepared for it.

You should also consider that this is often the last option for borrowers. It is unlikely that other lending institutions will be willing to give you money if you fail to repay the high risk personal loan.

Finding High Risk Personal Loans

If you truly need to pursue a high risk personal loan, then you should make sure you get one from a reliable company. It is easy to find Internet advertisements for questionable creditors that charge interest rates that are so high you could never make your payments. Contact the Better Business Bureau before you accept a loan from any company. You should also pay close attention to the details of the high risk loan. Consider that these loans represent a high risk for the banks, but they can carry a large risk for you as well.

TSC Sources and ResourcesFor even more resources, check out these Survivors Club articles:
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