High risk loans are loans given out to borrowers whose repayment ability and/or tendency is considered poor. There could be various factors that cause this, which may include a poor credit history, bad credit score, an inconsistent income, vast number of outstanding debts, evidence of a poor understanding of the credit system, ownership of a high risk business, etc. These loans typically are not secured by a collateral being at stake.
High risk loans are typically offered by direct lenders and with reference to these loans, such lenders are often termed as high risk lenders. Unlike the traditional lending where large banks and institutions have their reputation and brand recognition to uphold, most direct lenders are not as prominent and ensuring that you’re dealing with a reputable and legitimate high risk lender, can be of much importance while you choose a high risk loan. Read ahead, to understand more about high risk lenders and loans.
Are High Risk Loans Expensive?
Since there is a high risk for the lender, there is a natural expectation of a high return, which is one of the main reasons that high risk loans are expensive. High risk loans – loans that accept bad credit scores – are in much demand, which allows lenders to keep these loans expensive enough to compensate to an extent, for the added risk. As a result, high risk loans tend to have a high rate of interest or fees associated with them.
High Risk Personal Loans, Payday Loans and Installment Loans
High risk loans that are available for individuals, all under the category of “High Risk Personal Loans”. While there are types of loans available in the market that can fall under this category, the two most common types are:
- High Risk Payday Loans: These are high risk loans, which are usually due within 30 days – typically on the next pay date (unless that’s within 7 days). While the interest APR may seem high, the total fee or interest a borrower pays in absolute numbers, tend to be low due to the brief tenure. These loans are ideal when the borrower is confident of being able to repay them on time.
- High Risk Installment Loans: These are high risk loans, which can be paid back over 3 and 6 months via weekly, bi-monthly or even monthly installments. Some direct lenders may also choose to offer longer installment loan tenures, but the income requirement for such loans is likely to be high and the total fees/interest payable for such a long term loan is likely to be very high. These loans are ideal when the borrower needs more time to repay the loan or prefers repayment flexibility.
High Risk Loans for Bad Credit
High risk loans would typically be available to bad credit score holders, because the bad credit history of the borrower, is one of the factors that makes the loan a high risk loan. However, there are some lenders who may have a cut-off limit for credit scores. steady capital solutions reviews