Even if you are a borrower that is considered “high risk” due to poor credit, you do not have to simply take the first loan offer that comes along. A poor credit score does not mean you do not have options.
There are differing levels of high risk loans, and the interest rates can vary greatly. Of course they will likely all be higher than those of a traditional loan, but you can still try to get the best deal possible.
Show a Solid Credit History
You can have a solid two year history of paying bills on time and still have a low credit score due to a major past event such as a bankruptcy or a foreclosure. Some lenders will take this into consideration.
Borrowers that can show they have had their finances in order for at least a couple of years may be able to get a better interest rate than their score alone would typically warrant. Also, get letters from those that you pay regularly that may not show up on credit reports. Items such as rent and utilities may not show up on credit reports unless you miss payments, so ask for proof that you pay these things regularly from you landlord and utility companies and provide them to your lender. Most often this is in the form of a letter in good standing.
Try to Borrow the Least Amount Possible
Do whatever you can to fund whatever the loan is for on your own. Whether it means taking a second job, having a yard sale, or selling a boat or second car, the more you can pay for yourself the less you will have to borrow. That is less interest over time, and being able to explain to a lender that you have raised so much on your own and only need a loan to cover the gap could help your case as well.
There is no reason to settle for the first high-risk lender or loan that you find. Look around, talk to various lenders, and submit applications to more than one lender to determine who can offer the best rate. While you may not feel that you are in any position to negotiate, you can still ask about lower offers. The worst case scenario is that you take your high interest rate and move along. You will never know what you can get if you don’t try.
High risk loans are the only option for many with poor credit. That much is true. Do not settle for less than the best available in your situation. Also, remember that as you make your loan payment on time and consistently do so, your credit will improve.
When it improves to the point that you can, consider getting a more traditional loan with a lower interest rate to pay off the higher rate loan. This will allow you to get rid of the high risk loan in favor of a more traditional type, and continue to build your credit.