Every day, more people are losing their jobs and finding themselves in tough financial times. If you have ever been among these unlucky people, you may have damaged your credit rating and feel like you may not be able to get a loan. While it may be tough to find them, loans exist that are designed for people in just this situation. While it is sad that so many are struggling, it means that there is more demand for high risk personal loans, especially unsecured personal loans, and these loans are more available to people who might not have qualified for loans in the past. Bearing this in mind, here are the 8 things you should know about high risk loans:
1. Payday Loans are Expensive
You probably already know that payday loans should really only be a last resort. Unless you are absolutely sure you can repay them in full, they will typically cost you far more than they are worth. When extended for a full year, a $100 payday loan can have almost an 800% APR. That is astronomical compared to the rates that banks and even credit cards charge.
2. Payday Loans are Easy To Get
You are a grown-up, and only you can decide if it makes sense to get a payday loan. If you decide to apply for a payday loan, you will usually need to bring your ID, proof of income, a bank statement, and the date of your next pay day at a minimum. Some places also require you to have a certain level of income before they will give you a pay day loan. The good news about pay day loans is that you can get them the same or next day in most cases and there is typically no credit check, so your credit doesn't have to be good to qualify for one.
3. Payday Loans do not Improve Credit Scores
You would think that a loan paid off in a timely fashion would help you build your credit. This is not always the case. Since these loans are not usually reported to the major credit bureaus, they do not have a bearing on your credit score.
4. You Can Get a Loan Online
One of the best places to find a high risk personal loan is online, and you can get an online loan from the comfort of your home. If you have a poor credit rating, it can be embarrassing to apply for a loan in person only to be turned down. Going online for your application, ensures that you do not have to put yourself in this position. Online Loans usually have low limits on the amount of money you can borrow, which might prevent you from taking on more than you can handle financially.
5. Tax Return Loans are Available
Known as Return Anticipation Loans (RALs), these loans are extended based on the anticipated amount of your tax return. Basically, they are cash advances with interest rates ranging from about 50% to over 500% APR. Keep in mind that if you file your taxes early, you can generally have your return within 8-10 days if you file electronically and use direct deposit. This is almost always a better option than a Return Anticipation Loan, but it is good to know that they exist.
6. Your Car Can be Used as Collateral
Known as Car Title Loans, these are secured loans that use the title of your car as collateral. Often, the loan is for less than the car itself is worth, so it is essential that you are able to pay back the loan because the lender can take possession of your car if you are unable to pay in a timely manner. You are going to need your car, right? So, be very careful if you decide to go this route. The one positive is that secured loans such as this often have lower interest rates than payday loans.
7. There are High Risk Loan Stores
You can sometimes qualify for high risk personal loans of thousands of dollars or more if you go to one of the personal loan stores that are available in some states. With the credit crunch in the United States, there are fewer of these stores than there used to be, but a few still exist. High risk personal loan stores specialize in giving loans to people with bad credit. These are not pay day loans that you pay back in a couple of weeks. These are genuine, non-collateral, unsecured personal loans that you pay back over several years. Sometimes, you can get a lump sum loan, and other times you may qualify for a line of credit where you free up more money to spend as you pay off your loan(it's like revolving credit). The interest rate is typically high, but you have longer to pay it off, and it looks good on your credit report to have a higher loan awarded to you. These will probably take some work to find, but may be one of your best options.
8. Lenders Take a Risk, Too
Because these types of loans are really high risk to lenders, the fees and interest rates are typically higher for online unsecured personal loan options than they are for traditional loans. As such, you will probably have to pay more just to acquire one. Keep in mind that these are high risk personal loans to individuals whose credit doesn't warrant better terms, but better terms are often available to those with better credit scores or some sort of collateral.
Other Things to Keep in Mind About High Risk Personal Loans
One more thing that may make the process of searching for a high risk personal loan simpler is to search in your state first. The regulations for high risk loans are different in many locations and lenders may be more apt to loan to people located closer to them. Having said that, there are many financial products online and available anytime, and it will just take a little of your time and patience for you to find the right one.
Once you've decided which option is best, make sure that you do some research first and compare the interest rates of each lender. This will keep you from taking a loan that could cost you more money than you realized it would.