There are several well-known high-risk loans, which we’ll discuss next. Payday loans are short-term loans typically limited to smaller amounts up to $500. The repayment term on a payday loan may last only 2 weeks, or repayment will likely be due whenever you receive your next paycheck. Borrowers typically repay the full loan amount in a single payment or roll their payment over to another term, which is costly.Payday Loans
Payday lenders impose an APR of nearly 400% and charge $10 – $30 lending fees for every $100 borrowed. Rolling the loan over incurs another lending fee every time you extend the due date. Because of these high costs and the likelihood of rollovers, it’s best to avoid payday loans.
Title Loans
Car title loans are secured by your vehicle’s title, which the lender keeps as collateral until you can pay off the loan. Loan amounts tend to be 25% – 50% of your vehicle’s value, but this amount can vary from one lender to the next.
The loan term for title loans can last 15 – 30 days, and monthly rollovers incur a charge of 25% of your loan amount. Additionally, the APR for title loans is around 300%, in addition to a 25% finance fee. Worst of all, if you can’t repay the loan, you lose your vehicle to the lender.
Pawn Shop Loans
Pawn shop loans are also secured by collateral, but not necessarily vehicles. Valuable assets often used as collateral include jewelry, electronics and various personal possessions. In exchange for their collateral, borrowers can receive 15% – 60% of their item’s resale value in cash.
Loan amounts for pawn shop loans average around $150 with a 30-day term. Your interest rate can eclipse 200%, and lenders will charge varying fees. If you can’t repay the loan by the due date, the lender may sell your item to recapture the funds you’ve borrowed. It may be possible to roll the loan over, but you’ll have to pay another fee.
High-Risk Personal Loans
Some lenders offer “bad credit” personal loans to borrowers with a low credit score or no credit history. These loans will likely come with a high interest rate, fees and a stricter repayment term than a traditional loan.
Lenders that approve high-risk personal loans often require a certain minimum income, and possibly collateral, to secure the loan.
