Not everyone is lucky enough to get a loan and also pay it back on time. Sometimes, a person is in financial crisis and is compelled to take loan frequently for emergency needs. But if he is unable to pay back his loan, then this makes him a defaulter or at high risk.
There are two forms of high risk debts; one is unsecured loan which means there is no collateral from the borrower. Collateral means that you pledge your property or car as a security. In case you did not pay your loan back on due date, the banks or credit lenders will take over the collateral.
Another form of high risk loan is secured loans issued with no money as a deposit from the borrower. Lenders specialized in high risk loans may give you money but will still charge high interest rates and higher fees to balance any potential losses.
It becomes very difficult and sometimes impossible to acquire loans for high risk debts compared to other more conventional loans. People having low or no credit rating are considered high risk. The high risk lenders will acquire the knowledge, relating these factors before making such loans.
The lenders will compare your annual income with the amount you desire to borrow. He will verify the income tax returns and current paycheck receipts. He will check the credit history, whether you pay back the debts on schedule or not. The people with strong credit history are considered more eligible than those who have low credit score.
Any assets used as collateral can make you less risky for loan. A car or house is used as security and if the borrower fails to pay back the loan, a lender can repossess the security. In case of high risk, arrange a cosigner with better credit. The lender will lend you loan on behalf of the cosigner. The presence of co signer will reduce the risk.
Some people may have moved in the area recently and got a new job; they are considered high risk also; although they manage their finances responsibly. New immigrants and recently graduated students are also rated as high risk because they have no credit rating.
Every person is graded on a scale from A to D; where A is for the best and D for the worst. This grade is calculated from a person’s financial history. This financial history includes previous loans, current credit debt, repayment records and debt to income ratio; all are taken into account. If there is no credit, it is also noted.
Every person should be aware of their status before applying for a loan. Loans for high risk debts are offered with high interest rate and charges, in order to compensate for the possibility that some loans may be difficult to recover because of bad credit history.
It is better to be well informed before applying for high risk loan to avoid bad surprises.