What are high risk unsecured personal loans?
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Written by
Sara Routhier
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Reviewed by
Joel Ohman
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UPDATED: Jun 26, 2012
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High risk unsecured personal loans are loans that are high risk for the lender due to the fact that they are lent out to borrowers with bad credit and no collateral. Borrowers without assets and with bad credit may find these loans to be one of their best options if they are seeking to borrow money.
Perhaps the most notable feature of unsecured loans is that they do not require a guarantee. For many types of loans, collateral is required as security,which can come in the form of any asset, valuable possession, automobile, property, expensive jewelry, or expensive gadget. High risk unsecured personal loans are free of collateral requirements, hence the qualifier “unsecured.”
Due to this lack of collateral, lenders have no assurance that they will get their money back in the event a borrower defaults.
To help balance their risk, lenders of high risk unsecured personal loans often charge high interest rates. Some of these rates have been reported to be at 100 percent APR.
Surprisingly, unlike virtually every other type of loan, credit score is not an obstacle for borrowers when it comes to qualifying for high risk unsecured personal loans. However, borrowers’ credit may affect loan amounts. This unsecured form of financing is typically given in amounts of $350 to $7,000. The lower a borrower’s credit, the lower a lender will lend.
That being said, should a borrower pay off a high risk loan, they will see their credit impacted in a positive manner. However, borrowers who do default will experience a damaging blow to their credit score. Lenders will also not hesitate to use collection agencies should a borrower default.
Like other personal loans, high risk unsecured personal lending does not typically require borrowers to state their reasons for borrowing, but lenders do reserve the right to question intent and monitor purchases if they so choose.
The ongoing economic recession that began in 2007 has caused high risk unsecured personal lending to become much more common. Part of the cause of this trend is that the recession has left many people with little remaining valuable assets that could be used as collateral in other loans. Additionally, credit card usage rose during the recession due to lay-offs, bankruptcy and foreclosures leaving many people without steady sources of income.
High risk unsecured personal loans can be applied for online and sometimes even approved and obtained in less than 24 hours. Before applying, prospective borrowers can enter in their information on trusted sites to get a quote.