Have you been turned down for a conventional bank loan and informed that you have either no credit, or bad credit? Perhaps the reason you were denied was your over all credit rating, or score, wasn’t high enough for that particular lender. These are the top three reasons why conventional bank loans are denied. These same reasons are often stated when a person is denied an automobile loan through automotive lending institutions. So if you find yourself in this situation, having been denied a much needed conventional bank or automotive loan, what can you do? The next alternative to consider is what is called a high risk loan. People who have been turned down for conventional loans due to no credit, bad credit, or a low over all credit rating score, may find themselves feeling as if they are in a “catch 21” situation. To build or repair your credit, or to raise your credit rating, you need credit – yet, you can’t seem to get approved for a conventional loan. In this situation, a high risk loan can actually be of benefit.
A high risk loan has a much higher interest rate, often as high as 30%. A high risk loan typically requires a higher down payment. And a high risk loan often requires more detailed personal and work related information on the application. If you have no credit, bad credit, or a low over all credit rating and score, a high risk lender needs to be assured that you are committed to repaying the loan they extend, that you have adequate income to repay the loan, and that in the event you do not – they have the ability to locate you and take legal collection actions if needed. In return for their “leap of faith” with a person who is considered a high risk borrower, they charge a much higher interest rate. High risk lenders also typically prefer to lend on newer items, in case the loan goes into default. In the event they are forced to repossess, especially where automobiles, furniture, major appliances, and some electronics are concerned – the newer the item – the higher the resale value. The benefit to you, obviously, is that you get the loan to make the purchase you need. But you also get the opportunity to establish credit if you have none, repair credit if you have bad credit, and build your credit score and rating in either case.
When searching for a high risk lender, you should do as much research as possible! The high risk lending industry is booming, there are new institutions opening in this country – and off shore – daily. Some offer better terms and conditions than others, so it saves you money in the long run to do your homework now. Read the fine print! These are loan agreement contracts you would never want to rush into, or make your decisions in haste. Make sure you are aware of the interest rate, the payment schedule, and all the terms related to the payments. It is suggested you get everything the lending institution has discussed with you in writing, and an absolute must that you get a copy of everything you sign in writing. Creditable high risk lending institutions will typically have this information prepared and ready to share with you. In the event the lending institution has nothing to show you in writing, or doesn’t provide you with copies of everything they require you to sign, it is strongly suggested you consider a different institution.
As stated previously, these institutions typically require more personal and work related information on their loan and credit applications. You may feel as if you’re being asked to provide more than is necessary, but you have to keep in mind – in their eyes, you are considered a high risk borrower. It is typical to be required to provide your past and present addresses, your home and work phone numbers, your employment information and length of time you’ve been employed, your banking information such as checking and savings account information, and most of these applications have a section for information related to any credit cards you may have. Some require personal references, and these are allowed to be people related to you. Unlike an application for employment where you are asked to provide personal references who are not related to you – a high risk lender is hoping to get your Mother’s name and address, your best friend’s name and address, and your current girlfriend/boyfriend’s name and address. Why? Because if you default on the loan they extend you – they have a good list of people to network through to find you – or the item you procured the loan to purchase – so they can repossess.
So do your homework, find a high risk lender with the best terms and conditions, and work to repair the factors that placed you in the position of having to go this route in the first place! By repaying this loan on time, in full, you can successfully establish your credit, repair and rebuild your bad credit, and increase your over all credit rating and score.