High-Risk Personal Loans, Guaranteed Approval, Direct Lenders: How To Make Sense of It All

If you don’t have a ton of experience with personal finance basics, it’s easy to get confused by all of the terms. After all, there’s a lot to learn about managing your money, your credit score, and personal loans. So CreditNinja is here to help you sort it all out. If you’ve been wondering about high-risk personal loans, guaranteed approval, direct lenders, and more—then we’ve got you covered. 

Educating yourself on these terms and other personal finance practices is the best way to set yourself up for financial success in the future. Learning the basics is the first step on your path to financial independence. It can feel like a lot of work at times but take it from us; the result is worth it in the long run. 

Read on to learn more about some of these basic personal finance terms and practices. And for more personal finance information and tips, check out the rest of the CreditNinja Dojo today!

What Are High-Risk Personal Loans?

To understand what high-risk personal loans are, you’ll first want to understand what a personal loan actually is. It might seem obvious, but personal loans are loans that people use for personal expenses instead of business expenses. In some cases, they come in small-to-medium amounts ranging up to a few thousand dollars, and they’re repaid in monthly installments. So you might also hear them referred to as “installment loans.”

We here at CreditNinja consider personal loans to be installment loans. But keep in mind that there is no universal definition of personal loans. So you may hear other lenders referring to their products as personal loans. This may include online payday loans, title loans, pawn shop loans, and other bad credit loans. This is why it’s essential to do your homework, read the loan agreement, and ask questions before signing any loan. 

There are several loan options for people with poor credit. Unfortunately, they’re not all safe and affordable. Below are some of the most common high-risk personal loans—if we’re using the term “personal loans” to describe any loan a borrower uses for personal expenses. 

Common Bad Credit Loans

A personal loan can be helpful if chosen carefully and repaid on time. But if you take one out in haste and don’t do the proper research, you may end up in a problematic cycle of debt. Read on to learn about some of the most expensive and high-risk personal loans. 

Payday Loans

Payday loans are common short-term, small-dollar loans that poor credit borrowers use in emergencies.

Payday loans are unsecured personal loans, meaning you won’t need to offer any collateral to get one. Most payday loans only provide small amounts up to a few hundred dollars. Once you get the money, you’ll typically have about two weeks to repay the principal and interest. 

The things that make these unsecured personal loans so risky would be the extremely high-interest rates and the short repayment period. Paying back your principal, plus the extremely high-interest fees in only two weeks, is not easy. And it usually leads to borrowers extending their loans through a process called “rollover.” 

Rollover means the lender extends your loan to a new term while charging additional interest and fees. Rollover makes it challenging to pay the loan in total since the charges keep piling up. If you’re considering high-risk payday loans, you’ll want to make sure that you are absolutely sure you can pay it off in full by the due date.  

Title Loans

These are secured loans that use your vehicle as collateral for a loan. This means that you’ll have to risk losing your vehicle to get the cash you need. Taking out any personal loan comes with risks. But if you rely on your vehicle for everyday needs, it may not be wise to risk losing it for a personal loan. 

The way it works is relatively simple: you would allow the title lender to examine your vehicle and determine its value. They would then offer you a loan based on a fraction of the value of your vehicle. Once you repay the loan plus the interest and fees, you get your vehicle title back, and the transaction is complete. But suppose you fail to repay the loan. In that case, eventually, the lender can seize your vehicle and sell it to recover their money. 

In addition to risking your vehicle, these personal loans can come with high-interest rates and short repayment periods, depending on the lender you choose. Be careful of these high-risk personal loans. And make sure you do plenty of research before selecting any secured loans. And if you need some info on how to get out of a title loan without losing your car, we’ve got you covered.

Pawn Shop Loans

These are also unsecured loans, but your collateral for these personal loans would be any item of value that you own. 

Pawn shops are everywhere. You’ve undoubtedly driven past one, or maybe even been to one. But what does pawning something really mean? Well, one of the services they offer is secured loans. It works the same way a title loan works. But the item can be any valuable item you own as long as the pawn shop is interested. They will assess the item, offer you a loan, and you get your item back once you pay it off. But the same risks apply as with a title loan. If you can’t repay, you’ll likely lose the item. 

Safer Personal Loans for Bad Credit

So what is someone with poor credit supposed to do if they need a personal loan in a pinch? Great question, random reader!

Luckily, there are other options outside of the ones listed above. One of the most popular bad credit loans is a personal installment loan. And it may be the solution you need when dealing with an unexpected financial emergency. 

When it comes to personal loans for a bad credit score, these may be some of the most reliable. Depending on the lender, you won’t need an excellent credit score to get one. They also tend to come in larger amounts than your average payday loans and offer a more extended repayment period. Many personal installment loans can be repaid over several months or even a couple of years. 

There’s no denying that having a longer amount of time to repay a loan is preferable to repaying it in only a couple of weeks. It can undoubtedly make having a loan payment more manageable. But just as with any loan, we always recommend doing plenty of research and confirming that you can afford the interest and the fees before signing for the loan. 

Does Guaranteed Approval Really Exist?

Guaranteed approval is a term you might hear thrown around from different lenders. But what does it really mean, and is it possible?

Finding a lender that guarantees approval simply means that they’re claiming they’ll approve you for a loan no matter what. While that may sound good, it can be a red flag for predatory or deceptive behavior. 

Any credible lender, whether they offer mortgages or bad credit loans, will want to verify that their customers can repay the loan. They do this through credit history checks, looking at the customer’s bank account, and requesting plenty of information. If a lender guarantees approval for a personal loan, it means they don’t care about your financial status or credit history. And this may mean that they don’t care if you pay them back on time. 

When a lender isn’t concerned about being repaid on time, it may mean they make more money on late fees and rollover charges than on-time payments. Essentially, they want you to rack up additional fees and interest on your loan because they can make more. This is a red flag of a predatory lender. Be cautious of any lender guaranteeing approval, as they may be offering extremely high-risk loans. 

How Loan Approval Works

The application and approval process for a personal loan can be pretty straightforward, depending on your chosen lender. Many are now offering fully online application and approval processes. 

Here’s how your basic loan application and approval process works:

  • You fill out the application, providing personal and financial information: bank account status, credit history, etc. 
  • The lender reviews the application and determines whether they can offer you a loan. 
  • If they offer you a loan, you will review the amount, interest, APR, and other fees. You will then need to sign the loan agreement to receive your money. 
  • Many lenders will then deposit your money directly into your bank account. 
  • You can then use the money however you need to. 
  • You’ll begin repayment on the date specified in your loan agreement.
  • Once you repay the total amount of the loan plus interest and fees, the agreement is fulfilled, and the transaction is complete. 

How Your Credit Score Affects Loan Approval

Most lenders want to check your credit history and score before agreeing to give you a loan. Even some payday loans might require some sort of credit score verification. And the same rule applies no matter what type of personal loan or financial product you’re considering: the better your credit score, the better your chances of getting a loan and a reasonable interest rate. 

A reasonable interest rate can help you in many aspects of your financial life. You can get more loan and credit card opportunities, better interest rates, and more favorable terms and conditions. This is all because you’re seen as more trustworthy to lenders. 

Your credit score tells lenders how you’ve handled money in the past. A good credit score means you manage your money well, while a bad credit score is associated with high-risk borrowers. So if you want better loans and rates, improve your credit score! And read more about why your credit score goes up and down from time to time.  

Red Flags of Extremely High-Risk Loans

It’s important to remember that there are ways to tell whether a lender or loan is safe. High-risk loans may come in many forms, but they usually have several warning signs to help you identify them. 

  • Extremely high interest rates
  • Very short repayment periods
  • Intentionally confusing terms and conditions
  • A lot of subpar customer reviews
  • A lack of transparency or responsiveness

These are a great starting point for vetting a personal loan and the lender offering it. Having poor credit doesn’t mean you should be subject to predatory lending practices. Whether you’re searching for unsecured loans or secured loans, keep these red flags in mind and do plenty of research. 

What Are Direct Lenders?

Direct lenders are lenders that offer loans to customers without a loan broker or middle man. Basically, if you apply with a lender and they offer you a loan directly, they’re a direct lender. 

Many personal installment lenders are direct lenders. If you’re unsure, feel free to ask the lender you’re considering. Frequently, it’s easier to use a broker for things like mortgages because they can source several options for lenders for you. This can cut down on the work you, the borrower, have to do. Although you can research and apply with direct lenders for mortgages as well. 

Choosing Safe and Affordable Personal Loans

When considering a personal loan, your goal should always be safety, security, and affordability. While having poor credit might make it more difficult to find an affordable loan, you can still make the best of your situation by avoiding high-risk payday loans and risky secured loan options. 

And if you can learn ways to improve your credit score, you can get a better deal on a personal loan, whether it’s through direct lenders or a broker. Remember that improving your credit score takes time. But at least you better understand high-risk personal loans, guaranteed approval, direct lenders, and how to find the best deal for your situation.