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When applying for a new loan, your credit score is one of the most important factors that a potential lender will consider. Your loan approval can hinge largely on this three-digit number, which also affects your borrowing power.
If you have a low credit score or no credit history, you may need to turn to a high-risk loan when borrowing money.
Here’s what to know about high-risk loans and how they compare to other types of credit products:
- What are high-risk loans?
- Am I a high-risk borrower?
- Why choose a high-risk loan?
- Drawbacks of a high-risk loan
- Alternatives to high-risk loans
- Should I get a high-risk loan?
What are high-risk loans?
Before approving your application for a credit card, personal loan, or other credit-based product, a lender will review your credit history to determine how likely you are to repay your debt as promised. The more risk you pose to a lender, the less likely you are to get approved.
Some types of high-risk loans may include:
- Secured loans: These loans require an asset to be held as collateral, such as your home or car. If you default on your loan payments, the lender can take your collateral.
- Car title loans: With these loans, you’ll give the lender your car title to secure funding. But you’ll pay high fees and interest, and the lender can take your car if you aren’t able to make your payments.
- Payday loans: These are small-dollar, short-term loans with extremely high interest rates and fees. You should only consider them as a last resort.
Since these loans are offered to borrowers who may be at a higher risk of defaulting, lenders often charge higher interest rates and fees. This can help them offset potential losses while still offering loans to high-risk borrowers.
Am I a high-risk borrower?
A high-risk borrower can be defined in a few different ways, but it’s generally someone who a lender deems more likely to default on a loan product.
Lenders may consider you to be a high-risk borrower if you have bad credit, limited (or no) credit history, or a credit history that includes late payments, collections, defaults, judgments, or even bankruptcies. In some cases, lenders may consider you a high risk borrower if you apply for a loan but your income is too low.
Each lender sets its own criteria for borrower risk. Some may decide that any applicant with a credit score below 600 is high-risk. Others may base their lending decisions on your past accounts and payment history.
Why choose a high-risk loan?
If you need to borrow money as a high-risk borrower, here are some reasons you may opt for a high-risk loan:
- It might be your only option. If you don’t qualify for a traditional personal loan — either due to your income, credit score, or credit history — you may have to consider a high-risk loan instead. Whether you need to pay unplanned bills or just want to lower interest rates on other balances, these loans still offer a traditional loan structure, while remaining accessible to higher-risk borrowers.
- You can qualify with alternate criteria. High-risk loans may utilize other eligibility requirements and non-credit criteria to approve you for a loan, considering your broad financial picture rather than just your credit score. For example, you may only be required to prove that you have a steady income source, but there won’t be a minimum income requirement.
- Repayment terms are better than with payday loans. A payday loan is a very short-term loan, often with repayment terms that last just a few weeks. In addition to their high interest rates, lenders expect quick repayment on these loans. On the other hand, you can often repay a high-risk loan over a period of years, giving you a manageable monthly payment.
- It can save you from borrowing against other assets. Rather than pulling from a retirement account or other long-term asset, high-risk loans can give you the cash you need fast without affecting your future plans. In many cases, high-risk loans are unsecured, meaning that you don’t need to put up collateral to secure the debt.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
|Lender||Fixed rates||Loan amounts||Check rates|
|9.95% - 35.99% APR||$2,000 to $35,000**|
|11.79% - 20.84% APR||$10,000 to $50,000|
|8.99% - 35.99% APR||$2,000 to $50,000|
|7.99% - 24.99% APR|
$2,500 - $40,000
|11.72% - 24.67% APR||$3,000 to $40,000|
|9.57% - 35.99% APR||$1,000 to $40,000|
|7.49% - 25.49% APR with autopay||$5,000 to $100,000|
|18.0% - 35.99% APR||$1,500 to $20,000|
|8.49% - 17.99% APR||$600 to $50,000 |
(depending on loan term)
|14.3% - 35.99% APR||$3,500 to $40,000|
|8.99% - 25.81% APR10||$5,000 to $100,000|
|11.69% - 35.99% APR7||$1,000 to $50,000|
|8.49% - 35.99% APR||$1,000 to $50,000|
|6.4% - 35.99% APR4||$1,000 to $50,0005|
Drawbacks of a high-risk loan
High-risk loans have several downsides that you should consider before you apply, including:
- Interest rates can be very high. Borrowers with good credit can often take out personal loans with interest rates in the single digits. If you’re a high-risk borrower, however, your interest rates are generally much higher. Depending on the product and lender, these rates can even include an APR as high as (or higher than) credit cards.
- Borrowing limits may be too low. The best personal loan lenders may offer loans for as much as $100,000 to borrowers who qualify. In contrast, high-risk loans may cap out at just a few thousand dollars. If you’re borrowing that money to cover a large expense or unexpected bill, it may not be enough.
- You’ll often pay fees. Many personal loan lenders offer loans without any origination or application fees. But when it comes to high-risk loans, fees are more common and can add up quickly.
- It could trap you in a cycle of debt. If you’re already having trouble keeping up with all your bills, adding a new loan to your debt load could make it even more challenging to pay all your bills on time.
Alternatives to high-risk loans
If you aren’t sure whether a high-risk loan is the right choice for your financial needs, here are some alternatives you may want to consider:
- Introductory credit card offer: With an introductory credit card offer, you may be able to take advantage of a 0% APR on new purchases, balance transfers, or both. This can allow you to pay off existing debt or pay for a large purchase, without incurring any new finance charges. But you’ll typically need good or excellent credit to qualify.
- Home equity loan or line of credit: Securing a loan or line of credit with an asset, such as your home, can help boost your approval odds and even lower your interest rate. So if you own a property that’s worth more than you owe, you may be able to tap into a home equity loan or line of credit (HELOC) to get the funds you need. But this can also be risky: If you fall behind on your payments, the lender can foreclose on your home.
- Credit card cash advance: While credit cards often have higher interest rates than personal loans, you may be able to use a cash advance on an existing card if you need cash fast. This can also be more affordable than a new high-risk loan product in some cases. But the APR for a cash advance can be even higher than the card’s regular APR.
- Debt management agency: Debt management services can set up a personalized and tailored payment plan that gets you out of debt with a manageable monthly payment. In some cases, they may even be able to unlock lower interest rates and help you build your credit. But these agencies sometimes charge fees, and there’s no guarantee that your creditors will negotiate with them. It’s important to do your research to make sure you’re working with a reputable agency.
Should I get a high-risk loan?
Whether or not a high-risk loan is right for you depends on your specific situation.
If you don’t qualify for a traditional personal loan but need cash for unexpected bills, large purchases, or debt consolidation, a high-risk personal loan may be the answer. They often cost more than traditional personal loans and may have limited repayment terms, but they’re likely a much better option than high-risk loans such as payday loans.
Be sure to weigh all your options and the potential cost of each before making your decision. Loans are available to borrowers of all backgrounds and financial statuses, but high-risk loans aren’t right for everyone.
Any time you shop for a loan product, it’s important to compare multiple lenders so you can make sure you’re getting the best loan for your unique situation.