High Risk Loans For People With Bad Credit
These days, it is possible for people with poor credit to borrow money. The types of lending products that are available are typically termed high risk loans. The reason for this is that the lender is taking a risk in loaning money to a person who has a proven poor credit record.
A high risk personal loan generally has terms that are less than favorable. For example, a fairly low loan amount ($1500) might have a very high annual percentage rate (APR) (29.99%). In this article, we will identify the various types of high risk loans and review the risks and problems associated with each.
See ALSO: Loans For People With Bad Credit
Types Of High Risk Loans
Secured High Risk Personal Loans
You may be able to get a secured personal loan from an online lender or even from a credit union or bank. Typically, to get personal loans with bad credit they must be secured with some form of collateral such as your savings account, your vehicle or your home.
If you are able to get this type of loan, it will probably have the best terms available to you. You just have to be sure to make your payments on time or you will risk losing your collateral.
Unsecured Payday Loans
This is the easiest to get of high risk loans. These are short-term loans borrowed against your next pay check.
Payday lenders verify that you have a direct deposit going into your checking or savings account on a regular basis and determine the maximum amount you can borrow against your next check. The lender fronts you the cash and then collects payment from your checking or savings account on your payday.
This kind of loan is convenient and can be a good tool; however, you need to understand that the fees can be very high.
For example, you may pay anywhere from $10-$30 in fees if you want to borrow hundred dollars this adds up to an APR of 400%! It's easy to get stuck in a cycle of taking out payday loans every payday. Faxless payday loans make it easier and more dangerous because they can be done quickly online. When this happens, you end up paying a tremendous amount in fees.
While it is possible to use payday loans very carefully as a financial tool to be used only in case of emergency, this is not the way that most people do it. Unfortunately, many people end up being sucked into an endless cycle of debt. For this reason, many states have adopted very strict rules surrounding payday loans in an attempt to protect consumers.
Tax Return Loans
Like a payday loan, a tax return loan is money that is advanced to you against your expected tax return. The interest rates are very high (50-500% APR). This is a very poor choice in a high risk loan, especially when you consider the fact that you could have your income tax refund direct deposited into your bank account in a week or so if you file early online.
High Risk Auto Loans
An auto title loan is a type of collateral loan. With this type of high risk loan, you put up the title to your car as collateral for your loan. This loan is usually for an amount that is quite a bit smaller than the actual worth of your car.
This type of loan is a short-term loan (typically 30 days) that has very high interest rates. In fact, the interest rates on this type of no-credit-check loan range between 85% to 300%.
Like payday loans, auto title loans can trap you in an endless cycle of debt because it is possible make interest-only payments and continue renewing the loan. This can result in your paying more than double the amount of the original loan!
In 31 states, auto title loans have become illegal because they are generally a bad deal all around. There is really no way to use an auto title loan judiciously as a financial tool. No matter what you do, you will not get your money's worth and you may lose your car.
Loans For People With Poor Credit?
Many people may tell you that beggars can't be choosers, but you should not accept a bad deal just because you have poor credit and need a loan. Part of the process of rebuilding your credit is learning to make smart choices, so begin now by selecting your lender carefully and thoroughly understanding all of the terms and conditions of any loan agreement you sign.
Here are a few things you can do to get the best terms and conditions with high risk loans with poor credit. For one thing, you should be leery of no-credit-check type loans.
A lender who does not verify and checks credit history, financial circumstances and ability to repay is probably not an honest lender.
This is the type of lender who will mislead you regarding your credit standing and require you to purchase costly insurance add-ons that are ostensibly intended to pay off your loan in the event of your death or disability. In reality, this type of add-on mostly just puts cash in the lender’s pocket.
Signs that a loan lender may not be on the up and up include:
- Qualification guarantees: Any lender that guarantees that you will be approved without ever looking at your credit score or knowing your income is not trustworthy.
- Charging upfront fees: A lender who wants to charge you just to fill out an application is actually breaking the law! Look elsewhere for your loan.
- Pushy lenders: If you're getting a lot of unsolicited calls, letters and notices and/or emails, simply don't respond. A legitimate lender will not pester you to loan you money.
- Company names that are almost familiar: There are some unscrupulous (or downright bogus) lenders that use names that are very similar to legitimate lenders. Double check to be sure of the identity of any lender you consider dealing with.
- Information phishing: Don't provide your personal and financial information to any company that calls you up asking for it. Only share information with companies that you have sought out, and then only do so after you have thoroughly checked out their credentials.
- High-pressure scare tactics: You have a right to take your time and look around for the very best deal possible. If a lender tries to pressure you into signing on the dotted line, this is a sure sign that you should go elsewhere.
To be sure of getting the very best lender and the very best terms even on a high risk loan, you should take plenty of time to check out the lenders you're dealing with.
Read their online reviews and check to see if they are affiliated with the Better Business Bureau or other consumer protection group. Make sure that any company you deal with online actually has a legitimate physical address and a phone number that you can call.
Taking these kinds of steps will help you get the best deal in a high risk loan that will benefit you in the long term by helping you build your credit.
Sorting The Best Poor Credit Loans From The Worst Ones
It's easy to see that the very worst of high-risk loans available is the auto title loan. This is a type of loan that you should definitely stay away from no matter what. The interest and the risk are just too high to make this worthwhile.
The same is true of Tax Return Loans. Why should you hand over a high percentage of your hard earned tax return to a lender? Just file your taxes early and keep that money for yourself!
Payday loans are also quite risky and charge very high rates, so you should stay away from them unless you need a very small amount of money against your next paycheck that you can pay back easily in one payment. This type of high risk loan product does have its place in the event of a real emergency, but it must be handled with care and caution.
Which High Risk Personal Loan Should I Apply For?
With other types of high risk loans, there are criteria you need to judge for yourself to determine which are best and worst for you. Naturally, you will consider the interest rates and look for rates that are more favorable to you.
Additionally, look for lenders that are willing to loan you larger amounts. This doesn't mean that you should take out a larger loan and you need, but legitimate lenders are often willing to provide a larger loan for a genuine need. It's beneficial to you to cultivate a relationship with this type of lender.
Low APR: Look for the most reasonable annual percentage rate possible. Naturally with a high risk loan the APR will be high, but this doesn't mean that you should be required to pay an outrageous sum. Shop around for the best APR available to you.
Affordable Fees: Look for reasonable fees. Naturally any loan, including high risk loans will have some fees. Legitimate fees include:
- Refused payment fees
- Returned check fees
- Loan origination fee
- Late payment fee
- Prepayment fee
Lenders to avoid are those who charge all of these fees and more. You can expect to pay some fees with most lenders, but look for the ones who charge fewer fees at lower rates.
Flexible Terms: Lenders who want to work with you and value your business will offer you flexible terms. This gives you the ability to pay off your loan more quickly if you want to and save money on interest. On the other hand, you may wish to pay lower payments for a longer period of time. The point is, a good lender will give you that flexibility.
Clear Communication: Upfront information about all of the specifics of your loan is very important. Lenders who practice transparent communication will make sure that you understand all of the terms, conditions and fees associated with your loan before you ever fill out an application. This information should be clearly displayed on the lender's website as well.
Wide Spread Service: Be wary of lenders who only operate in your state or only in a few states. This may be an indication that they don't follow best practices in lending that would permit them to have an extensive reach. Lenders who do business in every state are highly likely to follow all the rules.
It can be hard to get the credit and financing you need if you have bad credit, but armed with clear information you can search intelligently and find just the right high risk personal loans product to meet your needs.