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Having a poor credit history hardly works in favor of applicants who are hoping to secure a loan. The good news, however, is that no matter how bad that history is, there are attainable loan deals out there. Sometimes the best option available is a high risk personal loan, with bad credit forcing leaps of faith on both sides.
Low monthly repayment sums are the ideal arrangement for borrowers, but when bad credit is a feature in the loan agreement, then interest rates are going to be higher and pressure to meet repayments greater. Being offered such factors is par for the course, and securing online loans usually depends on it.
But while the pressure is high for borrowers, and the risk equally high for lenders, there are still personal loan options that are affordable. But what are the pros and cons of these various loans? We look at 3 such deals to find the answer.
1. Cash Advance (Payday) Loans
This option is probably the most common, mainly because it has the highest degree of approval. In fact, approval confidence is extremely high despite the fact the applicant is seeking a high risk personal loan with bad credit. But they are also the most expensive option.
Granted against an upcoming paycheck, this loan basically cashes that check in advance. As a result, the loan limit is very low (maximum $1,500). Securing online loan approval can take just a few minutes, and funds can be deposited into a bank account in as little as 2 hours. So, this is an ideal solution for financial emergencies.
The price of getting a high certainty of approval is a very high interest rate, with some lenders charging 30%. And with repayment terms as short as 14 days, the pressure to repay this personal loan can be very acute. In fact, a $1,500 loan could require a single repayment of $1,950 to clear it.
2. Person 2 Person (P2P) Loans
In complete contrast, this is one of the least common options, but one that is growing in popularity. The problem with getting high risk personal loans with bad credit, is convincing the lender. But a P2P loan makes that easier, while also negating the influence of bad credit scores over interest rates.
A P2P lending website connects individuals rather than applicants to lending institutions, and the required sum is shared by these people, thus lowering the risk for them. These individuals view the loan as an investment as they earn a small profit through interest. In terms of securing online loans, this is a plausible option.
The loans work thus. An applicant needs a personal loan of $3,000, and calculates a monthly repayment budget of $150. Three individuals invest $1,000 each, to be repaid over 3 years. With repayments of $150, each make a profit of $800.
3. Cosigner Loans
Of course, when it comes to larger loans, there can be a problem with both of the first two options. To get a large high risk personal loan with bad credit, of $10,000 to $25,000, a cosigner is needed. Because a cosigner guarantees the monthly repayments, the risk is effectively removed. So, a lender can lower the interest rate charged.
Often, securing online loans comes down to issues like income and affordability, but a qualifying cosigner makes almost every loan deal affordable. But to qualify, they must have an excellent credit history and have enough income to be able to make the monthly repayments on the personal loan, if necessary.