Nowadays, different types of loans are being offered by banks and financial institutions. Personal loans are fast getting popular with its varied forms that are tailored to fit into the needs of customers. While secured personal loans require a collateral (a security pledged for the repayment of a loan), this is not necessary for an unsecured loan.
High Risk Personal Loans and Bad Credit
In case of secured loans, the lender is at liberty to take possession of the collateral, if the borrower fails to repay the amount. As there is no collateral in unsecured personal loan, money lending in such cases is associated with a high level of risk. Nothing is there for the lender to seize and recover the loss immediately. So, these high risk personal loans come with a higher rate of interest. This article will provide you with a brief overview about these high risk loans.
So, high risk loans are offered to those people, who have nothing to pledge as a collateral. In most cases, these loans are provided to those with a bad credit history. They may not be able to secure other types of loan, due to their bad credit rating. At times, these people may also come across such situations, where they need money urgently. For such people, high risk personal loans could be the only way out.
Most of the time, people get lured by the lucrative offers and easy accessibility of loans, but, fail to strike an optimal balance between their monthly income and expenditure. Such people end up in the state of bankruptcy. The records of loans, with details like payments, delays and defaults, are monitored by credit reference agencies, which assign a credit score to each borrower.
Thus, people trapped in debts and those who are on the verge of bankruptcy, are assigned with very low credit score. Such people with bad credit history may find it difficult to secure a loan, the next time, they face an urgent need of money. During such situations, high risk personal loans may prove useful. From the viewpoint of vendors, offering loans to people with bad credit is highly risky. So, the interest rates for these loans are higher, when compared to most of the other loan types.
More about These Loans
A high risk personal loan is a kind of unsecured, short-term loan. Usually, these loans involve small amounts and charge a higher rate of interest. With the increasing demand, nowadays, these loans are easily available. At present, you may find numerous lenders, who are ready to provide you with loans under this category. There are some benefits in opting for this loan, which offers diverse options, depending on the borrower's financial situation. According to your financial position and requirement, you can choose the right kind of loan. The following are some of the common features.
- Lesser loan amount
- Short period of repayment (1 to 5 yrs)
- High interest rate (8 to 20%)
- Less flexibility
The loan term, interest rate, maximum loan amount, etc., may vary from one lender to another. It may also happen that some borrowers get some leniency in loan amount or repayment (as extension of loan term). Though, most of these features are not beneficial for the borrower, there are certain advantages of high risk loans for people with bad credit.
- High risk personal loans can make a great tool for improving the credit score, provided you repay all your dues on time, without any default. It is your responsibility to make sure that your credit performance (and timely repayment) is being monitored by the credit agency regularly. Sometimes, you may be required to file a specific application to the credit reference agency so that it will monitor your ongoing credit performance, which can ultimately result in improving your credit score.
- These loans can be used whenever, you are in urgent need of money. They offer the best resource of funds at times of emergency. Nowadays, you may find numerous established banks that offer this type of loans. There are various online finance firms, which deal with high risk loans.
- Another big advantage is that collateral is not needed by the lenders for these loans. So, in fact nothing of your assets is at stake. The borrower is also not needed to have a co-signer to give personal guarantee.
- As they are unsecured high risk types of loans, the process of sanctioning is very fast and takes only 24 to 48 hours for you to get the loan amount. Sometimes you may get the amount within 24 hours.
- Even the procedure for application is quite easy and less cumbersome. The procedure does not require filling of long forms and applications. Moreover, the borrower can get the funds directly deposited in his account in a particular bank.
Apart from banks, there are numerous companies that can be found on the Internet or through the local newspaper/phone book for these loans. Because of their speedy and hassle-free processing, these rapid type advances have become very popular among the masses. They are also known as payday, personal, and unsecured loans.
As the name rightly denotes, high risk personal loans carry a greater risk potential associated with such transactions, mostly for the lenders. As there is absence of any collateral or co-signer involved in this process, this is more a kind of gamble for lenders. They have nothing to recover in the form of pledged assets. Unfortunately, if the borrower defaults or doesn't repay the loan, the process of recovery becomes very complex and expensive. However, lenders are willing to take that risk, but they compensate by increasing interest rates and fees. Though, the interest rates are quite higher, it is always worth to go for it, when you are in urgent need of cash.
As far as borrowers are concerned, high risk loans should be one of the last options for arranging finances. Reserve such loans for contingencies and not for luxuries, like holidaying. It will be better to approach your regular bank, as they are conversant with your past financial history. It may also happen that you strike a good deal with them. If you have enough time, approach other banks and financial institutions and compare their offers. Choose the one that is best suited for you. Go for a smaller loan amount, as it may become difficult to repay higher amounts within a short-term. Above all, try to repay the loan amount on time.