High-Risk Personal Loans with Guaranteed Approval from Direct Lenders

Last updated 03/15/2024 by

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Summary:

A high-risk personal loan, also known as a bad credit loan, is a personal loan with less than ideal terms and interest rates. However, these loans are often available to borrowers with lower credit scores. Though this provides financing to people in need, the high interest rates and poor terms may keep borrowers in debt for longer.

According to Experian, one of the three major credit bureaus, 16% of consumers in the United States have credit scores that fall below 580. This not only means that their credit rating is considered “very poor,” but they’ll most likely experience difficulties qualifying for loans with reasonable terms. If you’re one of the 16%, don’t worry, there’s still hope! Many lenders cater to high-risk borrowers to help them get the financing they need by offering bad credit loans — also referred to as high-risk personal loans.

In this article, we’ll explore the pros and cons of taking out a high-risk personal loan, how to get one, and whether or not it’s the right option for you.

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What is a high-risk personal loan?

In a nutshell, a high-risk personal loan is a type of financing that’s typically extended to borrowers with a poor credit history or a limited ability to repay the debt — also known as high-risk borrowers. And because these individuals are considered to be a greater risk to the lenders, the interest rates on high-risk personal loans are typically higher than those of traditional loans.

For this reason, high-risk personal loans can be very costly and should only be used as a last resort. So, before taking the plunge to take out these types of loans, always consider other financing methods with more favorable terms first.

Types of high-risk personal loans

Depending on what financial issue you face, you may require a specific high-risk loan. The two examples below are two of the most common high-risk loans for bad credit or lack of income.

No credit check loans. These are loans for individuals with poor credit, either as a result of bankruptcy, repossessions, or a lack of credit history.
No income verification loans (NIV). Typically lenders are required to check borrowers can afford to repay the loan they are applying for. So, you have reasons to be skeptical about lenders who don’t verify you have the income or assets to repay the loan you are applying for. They should only be considered as a loan of last resort in a real emergency.

What is guaranteed approval?

The truth is, there’s no such thing as guaranteed approval from a direct lender. Under the ability-to-repay rule, legitimate lenders must carry out assessments on applicants to ensure they’re able to repay their loans. So be very careful of any lender who does guarantee approval, especially if they require payment upfront. This is likely a scam and you could end up losing money or damaging your credit score by working with them.

However, this doesn’t mean you should give up hope. There are many lenders who are willing to work with people with all types of credit histories. Even if you’ve been turned down by one lender, it’s still worth exploring unsecured loans with other lenders.

How to get high-risk personal loans

The process of getting a high-risk personal loan is similar to applying for any other type of financing.

The first step is to research your options and find lenders that consider borrowers with less than perfect credit. The loan comparison tool below can help you find lenders that consider borrowers with your credit score. The filter is set to show lenders that consider borrowers with a credit score of 600, but you can adjust it to whatever yours is.

Once you’ve found a few lenders you’re interested in, take advantage of prequalification. This involves providing some basic information about your financial situation and credit history. Then, based on this information, lenders will give you a quote for the interest rate and terms of the loan.

Before committing to a lender, you’ll want to compare different loan offers to choose the one that’s right for you. Be sure to consider the interest rate, repayment terms, and any fees or penalties associated with the loan before signing the dotted line on a loan request form.

Pros and cons of high-risk personal loans

Just like any other financing method, there are pros and cons when it comes to taking out a high-risk personal loan.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros

Provides quick access to cash. Each high-risk personal loan lender has its own approval process. But generally speaking, it should take around a week (and sometimes even less) for a loan approval and to receive the funding you need. This makes high-risk personal loans a great option for covering emergency expenses.
Less stringent requirements. One of the main advantages of high-risk personal loans is that the requirements for qualification are usually less stringent than other types of loans. For instance, a mortgage or car loan may require extensive documentation of your income and other debts.
No collateral required. Unlike secured loans that require collateral, high-risk unsecured personal loans are based solely on the borrower’s credit history and income. This means even if you don’t have assets — such as a home or a car — to use as collateral, you could still qualify.
Can be used for almost anything. High-risk personal loans can be used for almost any purpose, including home repairs, medical bills, car improvements, and even travel expenses.

Cons

Can lead to unnecessary debt. The last thing you want when taking out a high-risk personal loan is to end up owing the lender substantially more than what you originally borrowed. However, this can be the reality for borrowers who fail to repay the loan and incur hefty fees and interest charges.
High-interest rates. Because lenders perceive you as a greater risk, they charge higher interest rates to offset that risk. This can end up costing you a lot of money in the long run, even if the loan helps you meet your immediate needs.
Potential credit damage. Since most high-risk direct lenders report late payments and nonpayment to credit reporting bureaus, you could damage your credit score if you fail to repay your debt on time.

Pro Tip

If the interest rate on your high-risk personal loan is lower than the interest rates you’re currently paying on your other debts, it could make financial sense to use the personal loan for debt consolidation purposes.

What is the easiest loan to be approved for?

There are a number of factors that determine how easy it is to qualify for a loan, such as your credit history and income level. But in general, these are the easiest types of loans to be approved for — even with a poor credit score:

Payday loans (cash advance loans). Payday loans are small, short-term loans that can be used to cover unexpected expenses or emergency bills. Because of the high interest rates, payday loans should only be used as a last resort after you’ve exhausted all other avenues. And even then, they should be repaid as soon as possible to avoid interest charges that can quickly spiral out of control.
Pawnshop loans. A pawnshop loan is a type of collateral loan where you use an item of personal property as security for the loan. If you pay off your loan in time, you’ll get your item back. If not, then the pawnbroker will keep it. However, this may not be the best option if you need large sums of cash. According to the National Pawnbrokers Association, the national average pawn loan is only $150 and lasts 30 days.
Auto title loans. Auto title loans are a type of subprime secured loan that uses your vehicle as collateral. How much you can borrow will depend on the market value of your car, and you can typically borrow 25% to 50% of that value. If you default on the loan, the lender can repossess your vehicle.

Because of the risks involved in getting an auto title loan, make sure you choose the best lender for your situation. Try our comparison tool below to filter what lenders offer loans for your specific credit score.

Are payday loans easy to get?

If the funds in your bank account are running low and you need some extra money to tide you over until your next paycheck, you may be considering a payday loan. High-risk payday loans are a type of short-term loan that can be used to cover unexpected expenses or bridge the gap between paychecks. They’re typically quite easy to qualify for, even if you have a bad credit score. However, this type of high-risk loan often comes with extremely high-interest rates (around 400% and even 600% APR) and fees.

Because of the ridiculously high borrowing cost, five states — Arizona, Arkansas, Georgia, New Mexico, and North Carolina — currently consider these types of extremely high-risk loans illegal. Though no statutes currently exist prohibiting payday loans as of 2021, the following states imposed strict legislation stating payday loan interest rates must comply with those on consumer loans: Connecticut, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Vermont, and West Virginia.

What kind of loan can you get with a 550 credit score?

A FICO score of 550 is considered poor and will likely limit your loan options. But don’t despair, there are still some lenders who may be willing to work with you. Though one option is the high-risk lenders we already discussed, there are other options available.

For example, you may qualify for secured loans that use collateral like a savings account or piece of property to reduce the risk for the lender. If you have any assets that can be used as collateral, this may be worth exploring. Similar to secured loans, you may want to look into secured credit cards, which require a security deposit to use the card. This can also be a great option to build your credit if your current score is lower than you’d like it to be.

In any case, remember that though a low credit score can make it more difficult to get a loan, it’s not impossible. Just make sure to do your research and shop around for a lender that offers the best terms.

Key Takeaways

High-risk personal loans are designed for borrowers with poor credit who have a difficult time qualifying for other loan types.
To offset the greater risk of default, high-risk personal loan lenders typically charge higher interest rates than traditional lenders.
Because high-risk personal loans come with high-interest rates and fees, they can often trap borrowers in a cycle of debt if they’re not careful.
Instead of considering high-risk personal and payday loans, you may want to consider building your credit score with form of secured lending. This could be through a secured personal loan or secured credit card.

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