A high-risk loan is a loan that poses more risk to a lender that chooses to issue credit to someone with a low credit score, also known as a "high-risk borrower." These borrowers generally do not have a solid track record of repaying debts, tend to keep credit card balances close to their limits, or have a limited credit history, making them more likely to default on a loan.
What We'll Cover
- Why Do People Choose to Get High-Risk Loans?
- What are the Easiest Loans to Get When You Have Bad Credit (400-500)?
- Companies that Offer the Best High-Risk Loans For Poor Credit (or Even Without Checking It)
- Alternatives to a High-Risk Loan
- The Bottom Line: Make Sure You Do Your Research Before You Take Out a High-Risk Personal Loan
As a result, a high-risk loan is a subprime loan offered to these high-risk borrowers. These loans can have double, or even triple-digit interest rates, which are in place to mitigate the risk of making loans to people with bad credit. If the loan is not repaid, the interest paid on the loan will be used to reduce the lender's losses.
For these reasons, before you apply for one of these high-risk loans, it is crucial to understand what you are getting into.
Why Do People Choose to Get High-Risk Loans?
Typically, high-risk loans are considered unsecured loans, which means that you are not required to provide a guarantee or any collateral to the lender to obtain this loan, such as valuable possessions, property, assets, cars, or a home. Often, people need a loan but have been refused everywhere and are looking for help.
However, to balance the lender's risk, these unsecured loans will generally charge a high-interest rate, which if you fail to make your repayments on time or default on the loan, you can wind up with significant debt and a damaged credit score. That is why before taking on a high-risk personal loan (even one with guaranteed approval from direct lenders), you need to make sure you understand the terms of this loan and are prepared to handle these higher interest rates.
Yet, while these high-risk loans come with many stringent conditions, they can often be a blessing for many. For instance, when an individual is facing an immediate financial crisis, a high-risk loan can be a reprieve for a high-risk borrower, especially during emergencies, such as when they are facing a medical concern, a sudden house problem, motor vehicle repairs, or an overdue credit card bill.
Another common reason individuals take out a high-risk personal loan is to help fix their finances. Even though these loans often come with a much higher interest rate, when individuals adhere to a strict repayment plan, these loans can help them consolidate debt and improve their credit scores. In fact, on-time payments can count up to 35% of a person's credit score.
What are the Easiest Loans to Get When You Have Bad Credit (400-500)?
If your credit is low, such as in the 400 and 500s, there are certain loans that are easier to get than others. For instance:
- A Home Equity Line of Credit (HELOC) Loan: These loans use your home as collateral instead of focusing on your credit score. As a result, your loan will be based on how much equity is in your home.
- Loans Secured by a Co-Signer: If you apply for a loan that is secured by a co-signer, who has excellent credit, you will have a better chance of getting approved for the loan.
- An Unsecured Personal Loan: Although unsecured personal loans tend to be based on your creditworthiness, there are some unsecured personal loans that are available for those who have poor credit. There may even be high-risk personal loans with no credit check.
Companies that Offer the Best High-Risk Loans For Poor Credit (or Even Without Checking It)
If you are considering a high-risk personal loan but do not know where to start, or you need a loan but have been refused everywhere, we have prepared the below list of some companies that may be worth checking out when trying to obtain one of these loans.
Money Mutual is often one of the better companies for high-risk loans, especially because they often provide agreeable repayment terms. The company offers cash advances between $200 and $5,000, with these amounts being credited to your account as early as within 24 hours. All you need to do to get this loan is submit your case to them and let them review what happened with your credit score.
- With Money Mutual, it does not matter how low your score is; The company will help you with your high-risk loan; Better yet, you will not have to worry about unsecured loans that are often difficult to deal with in the future because Money Mutual is the one who will give you money through their escrow system
- When it comes to their annual percentage rate of charge (APR) and their term length, you will not be able to get a good idea for their averages, as these are based on a case-by-case basis
Bad Credit Loans
Bad Credit Loans provides individuals with many borrowing options of secured loans regardless of their credit history. Generally, you will be able to borrow anywhere from $500 to $10,000 by simply providing basic information, such as your date of birth, four digits of your Social Security Number, and your Zip Code. The company then uses this information to decide if you can get a loan.
- The company will not use your credit score to decide if you qualify for a loan, making it one of the high risk loans for those with poor credit
- Their interest rates are relatively high, reaching 35,99%; Plus, the company charges a fee for its services
When you use PickALender to secure your high-risk loan, you will find that they have a straightforward process that will help you get a loan anywhere between $100 to $40,000. After completing a simple form, the company will decide whether you qualify for a loan without factoring in your credit score.
- The repayment terms are easy to understand and are presented in a transparent manner, so there will be no confusion regarding your loan options and repayment criteria
- If you are looking to plan ahead, the company does not provide specific APRs or loan term lengths; This means to find out details about these loans, you will have to talk to a representative to get more information
CashUSA is an excellent option for those looking to secure money from a reliable lender with lower origination fees and low-interest rates.
- The company offers loans ranging from $500 to $10,000 and often provides a loan decision within minutes; Better yet, the company can directly place these funds into your bank without needing to know the purpose of the loan or your credit score
- Interest rates can get as high as 35,99%, which can become an issue for some borrowers
If you are looking for a company that will provide you with a loan when you have a very poor credit score, then PersonalLoans is considered a great option by many. The company is known to provide loans at affordable interest rates while connecting you with many lenders who do not care about your credit history.
- When you work with the company, you can review the repayment terms yourself and determine which plan is the best option for you; Typically, you will be able to borrow anywhere from $500 to $35,000 from lenders who will not scrutinize your background
- PersonalLoans does charge you an origination fee, and in certain circumstances, the interest rates can get as high as 35,99%; That is why it is important to review the loan terms thoroughly
Lending Tree can help you find personal loan lenders who can provide you with loans ranging from $1,000 to $50,000 and rates as low as 2.49% APR.
- When you work with the company, not only will you find that the website is easy to understand and the paperwork is simple to fill out, but the response time is quick, ensuring you get your money fast
- The interest rates can get as high as 35,99%, depending on the loan; It is also important to note that some of the lenders will not provide loans to individuals in certain states, they may scrutinize the reason for these loans and may charge a hefty origination fee
Alternatives to a High-Risk Loan
Sometimes obtaining a high-risk loan may not be in your best interest. In some cases, depending on the circumstances, you may want to consider an alternative to a high-risk loan, which may include:
- Focusing on Your Credit Cards: If you do not qualify for a consolidation loan with an interest rate lower than your APR on your credit cards, you may want to consider focusing on the credit cards themselves if you can afford your card's minimum payments.
- Debt Management Plan: You may want to consider a debt management plan (DMP) through a nonprofit credit counselor that can help reduce your interest rate and consolidate all your monthly debt payments into one. However, you should note that a DMP can impact your credit score negatively because when you enter the plan, you typically have to close all your accounts.
- Credit Counseling: Credit counseling is a free service offered by nonprofit agencies, where a certified counselor can help you develop a plan to help you get out of your financial troubles based on your individual circumstances.
You may also want to read: No Interest Credit Cards for 24 Months: Best Options
The Bottom Line: Make Sure You Do Your Research Before You Take Out a High-Risk Personal Loan
While the high-risk personal loan can help individuals with their credit score and allow them to secure the money they need when they are in a pinch, there are a lot of risks to taking out these loans. That is why before you decide on this route for your financial needs, make sure you take your time and research all of your options to find out how this loan will affect your credit and your overall financial health.
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