High Risk Loan

A high risk loan is a beautiful, and enticing, yet treacherous temptress. She lures borrowers with the promise of immediate money with time to make the money to pay it off. But be careful, beneath her charms, high risk loans have the ability to trap individuals into an ever downward spiral of debt, racking up interest charges the entire time. One may be able to take advantage of such loans, but successfully doing so depends on diligence and timeliness with payments. 

There is no denying that there are times when borrowing is a necessary venture. Indeed, borrowing and faithfully making payments is a great way to rebuild ones credit. Individuals may be in an emergency situation when cash is needed immediately. Because of some poor financial decisions or hardships in the past, a high risk may be the only option available. A high risk loan can assist in emergencies, but can become an emergency itself if not diligently paid off due to the higher interest rates associated with them.

There are a variety of types of high risk loans. The most potentially risky types are payday, pawnshop, and title loans. These typically charge interest rates exponentially higher than regular credit card cash advance fees. Most credit cards charge around 17% APR on cash advances, yet these loans, when configured for the shorter amount of time they are loaned, can charge in excess of 1000% APR!

There are alternatives to this type of borrowing. The first thing one must do is sit down and develop a budget that keeps living expenses within ones means. A good first step is to pay off any lines of credit that carry small balances since ones credit score is affected by how many lines of credit are open, as well as the amount owed on each. If it is clear that a loan is still necessary due to a financial emergency or hardship, it is wise to borrow as little as possible and pay it off as quickly as possible. Even paying off a high risk loan will raise ones credit score, and provide access to lower borrowing interest rates in the future.

Most state governments are seeking ways to limit the amount of high risk loans being offered, as well as the interest rates the lenders can charge, but government cannot completely protect consumers. God requires that Christians become financially responsible. When you have proven yourself to God in little ways, He will bless you abundantly. "Well, thou good servant: because thou hast been faithful in a very little, have thou authority over ten cities". (Luke 19:17)