If you don’t have a ton of experience with personal finance basics, it’s easy to get confused by all of the terms. After all, there’s a lot to learn about managing your money, your credit score, and personal loans. So CreditNinja is here to help you sort it all out. If you’ve been wondering about high-risk personal loans, guaranteed approval, direct lenders, and more—then we’ve got you covered.
Read on to learn more about some of these basic personal finance terms and practices. And for more personal finance information and tips, check out the rest of the CreditNinja Dojo today!
What Are High-Risk Personal Loans?
To understand what high-risk personal loans are, you’ll first want to understand what a personal loan actually is. It might seem obvious, but personal loans are loans that people use for personal expenses instead of business expenses. In some cases, they come in small-to-medium amounts ranging up to a few thousand dollars.
These loans are some of the most popular lending options out there, and an estimated 19.1 million consumers currently have an unsecured personal loan.1 Personal loans are repaid in monthly installments. So you might also hear them referred to as “installment loans.”
We here at CreditNinja consider personal loans to be installment loans. But keep in mind that there is no universal definition of personal loans.
So you may hear other lenders referring to their products as personal loans. This may include online payday loans, title loans, pawn shop loans, and other bad credit loans. This is why it’s essential to do your homework, read the loan agreement, and ask questions before signing any loan.
There are several loan options for people with poor credit. And according to BadCredit.org, about 20% of Americans have subprime or poor credit.2 Unfortunately, they’re not all safe and affordable. Below are some of the most common high-risk personal loans—if we’re using the term “personal loans” to describe any loan a borrower uses for personal expenses.
Common Bad Credit Loans
A personal loan can be helpful if chosen carefully and repaid on time. But if you take one out in haste and don’t do the proper research, you may end up in a problematic cycle of debt.
Read on to learn about some of the most expensive and high-risk personal loans. Directly below is a table for a quick snapshot of that information:
| High-Risk Loan Type | Description |
| Payday Loan | Payday loans are short-term, small-dollar loans that are typically due on the borrower’s next payday. High interest rates and fees are common. |
| Title Loan | Title loans are secured loans that use your vehicle as collateral. |
| Pawn Shop Loan | These are secured loans where any item of value can be used as collateral. |
Payday Loans
Payday loans are common short-term, small-dollar loans that bad credit borrowers use in emergencies, they may sometimes be referred to as no credit check loans.
Payday loans are unsecured personal loans, meaning you won’t need to offer any collateral to get one. Most payday loans only provide small amounts up to a few hundred dollars. Once you get the money, you’ll typically have about two weeks to repay the principal and interest.
The things that make these unsecured personal loans so risky would be the extremely high-interest rates and the short repayment period. Despite having easy loan approval, paying back your principal, plus the extremely high-interest fees in only two weeks, is not easy.
And it usually leads to borrowers extending their loans through a process called “rollover.” Rollover means the lender extends your loan to a new term while charging additional interest and fees.
Title Loans
These are secured loans that use your vehicle as collateral for a loan. This means that you’ll have to risk losing your vehicle to get the cash you need. Taking out any personal loan comes with risks. But if you rely on your vehicle for everyday needs, it may not be wise to risk losing it for a personal loan. If you fail to repay the loan. In that case, eventually, the lender can seize your vehicle and sell it to recover their money.
In addition to risking your vehicle, these personal loans can come with high-interest rates and short repayment periods, depending on the lender you choose. Make sure you do plenty of research before selecting any secured loans. And if you need some info on how to get out of a title loan without losing your car, we’ve got you covered.
Pawn Shop Loans
These are also unsecured loans, but your collateral for these personal loans would be any item of value that you own.
Pawn shops are everywhere. You’ve undoubtedly driven past one, or maybe even been to one. But what does pawning something really mean? Well, one of the services they offer is secured loans. The item can be any valuable item you own as long as the pawn shop is interested. They will assess the item, offer you a loan, and you get your item back once you pay it off. But if you can’t repay, you’ll likely lose the item.
Safer Bad Credit Personal Loans
So what is someone with poor credit scores supposed to do if they need a personal loan in a pinch? Great question reader!
Luckily, there are other options outside of the ones listed above for poor credit scores. One of the most popular bad credit loans is a personal installment loan. And it may be the solution you need when dealing with an unexpected financial emergency.
When it comes to bad credit personal loans, these may be some of the most reliable. Depending on the lender, you won’t need an excellent credit score to get one. They also tend to come in larger amounts than your average payday loans and offer a more extended repayment period. Many personal installment loans can be repaid over several months or even a couple of years.
There’s no denying that having a longer amount of time to repay a loan is preferable to repaying it in only a couple of weeks. It can undoubtedly make having a loan payment more manageable. But just as with any loan, we always recommend doing plenty of research and confirming that you can afford the interest and the fees before signing for the loan.
Does Guaranteed Approval Really Exist?
Guaranteed approval is a term you might hear thrown around from different lenders. But what does it really mean, and are bad credit personal loans guaranteed for approval when you apply?
Finding a lender that guarantees approval simply means that they’re claiming they’ll approve you for a loan no matter what. While that may sound good, it can be a red flag for predatory or deceptive behavior.
Any credible lender, whether they offer mortgages or bad credit loans, will want to verify that their customers can repay the loan. They do this through credit history checks, looking at the customer’s bank account, and requesting plenty of information.
If a lender guarantees approval for a personal loan, it means they don’t care about your financial status or credit history. And this may mean that they don’t care if you pay them back on time.
When a lender isn’t concerned about being repaid on time, it may mean they make more money on late fees and rollover charges than on-time payments. Essentially, they want you to rack up additional fees and interest on your loan because they can make more.
This is a red flag of a predatory lender. Be cautious of any lender guaranteeing approval, as they may be offering extremely high-risk loans.
How Loan Approval Works
The application and approval process for a personal loan can be pretty straightforward, depending on your chosen lender. Many are now offering fully online application and approval processes.
Here’s how your basic loan application and approval process works:
- You fill out the application, providing personal and financial information: bank account status, credit history, etc.
- The lender reviews the application and determines whether they can offer you a loan.
- If they offer you a loan, you will review the amount, interest, APR, and other fees. You will then need to sign the loan agreement to receive your money.
- Many lenders will then deposit your money directly into your bank account.
- You can then use the money however you need to.
- You’ll begin repayment on the date specified in your loan agreement.
- Once you repay the total amount of the loan plus interest and fees, the agreement is fulfilled, and the transaction is complete.
How Your Credit Score Affects Loan Approval
Most lenders want to check your credit history and score before agreeing to give you a loan. Even some payday loans might require some sort of credit score verification. And the same rule applies no matter what type of personal loan or financial product you’re considering: the better your credit score, the better your chances of getting a loan and a reasonable interest rate.
A reasonable interest rate can help you in many aspects of your financial life. You can get more loan and credit card opportunities, better interest rates, and more favorable terms and conditions. This is all because you’re seen as more trustworthy to lenders.
Your credit score tells lenders how you’ve handled money in the past. A good credit score means you manage your money well, while a bad credit score is associated with high-risk borrowers. So if you want better loans and rates, improve your credit score! And read more about why your credit score goes up and down from time to time.
Red Flags of Extremely High-Risk Loans
It’s important to remember that there are ways to tell whether a lender or loan is safe. High-risk loans may come in many forms, but they usually have several warning signs to help you identify them.
- Extremely high interest rates
- Very short repayment periods
- Intentionally confusing terms and conditions
- A lot of subpar customer reviews
- A lack of transparency or responsiveness
These are a great starting point for vetting a personal loan and the lender offering it. Having poor credit doesn’t mean you should be subject to predatory lending practices. Whether you’re searching for unsecured loans or secured loans, keep these red flags in mind and do plenty of research.
High Risk Personal Loans FAQs
Here are some answers to frequently asked questions related to high-risk personal loans:
It’s always worth a try! Some lenders may be willing to negotiate the terms of your loan, such as the interest rate or repayment period. It’s important to communicate openly with your lender about your financial situation. Remember, it’s in their best interest for you to be able to repay your loan.
Defaulting on a loan can have serious consequences. It can significantly lower your credit score, making it harder to get credit in the future. The lender could also take legal action against you to recover the money. It’s crucial to communicate with your lender if you’re having trouble making payments. They may be able to work out a modified payment plan with you.
Yes, you may be able to! However, you might need to provide additional documentation to prove your income, like tax returns or bank statements. Each lender has different requirements, so it’s important to check with them directly.
It may be possible to have more than one personal loan at a time, but it’s generally not recommended. Having multiple loans can lead to a high debt-to-income ratio, which can make it harder to keep up with payments and negatively impact your credit score. It’s important to carefully consider your ability to repay before taking on additional debt.
A Note from CreditNinja: Choosing Safe and Affordable Bad Credit Personal Loans
At CreditNinja, we want you to understand that when considering a personal loan, your goal should always be safety, security, and affordability. While having poor credit might make it more difficult to find an affordable loan, you can still make the best of your situation by avoiding high-risk payday loans and risky secured loan options.
And if you can learn ways to improve your credit score, you can get a better deal on a personal loan, whether it’s through direct lenders or a broker. Remember that improving your credit score takes time. But at least you better understand high-risk personal loans, guaranteed approval, direct lenders, and how to find the best deal for your situation. To learn more check out more of CreditNinja’s blog!
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