High Risk Personal Loans Lenders Include Pawnbrokers, Payday Lenders

High risk personal loans lenders specialize in lending money to people who have bad credit scores, and therefore find it difficult to borrow money. In general the lender will compensate for the perceived high risk of default on the loan, either by charging a high rate of interest, or by requiring some form of security. Those who find themselves forced to continually borrow money at high rates of interest should be aware of the possibilities of rebuilding their credit rating, or of getting debt counseling to improve their budgeting skills, and over time to reduce their level of indebtedness.

Lenders generally judge the risk of lending money to a person by checking their credit score. Credit reference agencies (CRAs) hold the personal and credit histories of individuals in their files. When a person tries to obtain credit, for example by applying for a loan, a store card or a credit card, then the prospective lender will consult one of the major CRAs. The credit score for the individual will determine whether credit should be offered or refused.

Those who will lend to those with poor credit scores include pawnbrokers, payday lenders and lenders using risk based pricing. Money borrowed from pawnbrokers is secured by items of personal property, such as jewelry and TV sets. If the loan is not repaid on time, then the item will be sold by the pawnbroker. Usually the amount which the pawnbroker is willing to advance is substantially less than the new value of the item.

Interest rates charged by pawnbrokers can vary quite widely, but usually equate to an annual rate in excess of 100%, which is very high. In some US states pawnshop interest rates are capped by regulations.

Payday lenders are another way in which those with poor credit histories may borrow money. Payday loans are short term loans for small amounts of money, which are intended to tide the borrower over until the next paycheck comes in. Interest rates are often between 15% and 30% for the term of the loan (a few days usually). This can work out to over 1000% per year, once compound interest is taken into account.

Those who find themselves forced to regularly borrow money at high rates of interest should be aware of the possibilities of rebuilding their credit rating, or of getting credit counseling to improve their budgeting skills, and over time to reduce their level of indebtedness. Free credit counseling can be obtained from charitable organizations such as Consumer Credit Counseling Service (CCCS) in the UK, or from non-profit debt counselors in the US.

In most countries individuals have some legal entitlement to see the information contained in their credit file, and have it corrected if necessary. For example in the US everyone can obtain a free annual copy of their credit history from each of the three major credit bureaus. If there is an error then write to the CRA and have it corrected.

Note that some information such as bankruptcy histories is time limited. If a person was bankrupt 15 years ago they could ask for that information to be deleted from the file, as the time limit is 10 years for bankruptcy.