Benefits
of High Risk Loans
One of the difficult things about getting a student loan is that students are often automatically labeled “high risk borrowers”. It’s nothing personal. It’s just that students don’t fit in the typical criteria used by lending institutions.
For example, students don’t have an employment history (and no, that summer job at the neighborhood coffee shop doesn’t count). Lending institutions not only look for people with jobs, but those who’ve spent several years in one company—for them, it’s a sign of stability. But what if you’ve just graduated, haven’t found employment yet, or just started a few months ago?
Banks also look at credit history, but this is the catch 22. To get a credit history, you need to have had borrowed money and paid it back on time. But how can you do that when banks won’t even give you a loan to begin with? The glitch in the credit review system is that you need to have borrowed before in order to borrow again. This can be problematic for students who, for years, was a loyal customer of the Bank of Mom and Dad.
However, students and fresh graduates can avail of high-risk loans. These are offered by lending institutions who are willing to forego some of the criteria set by most credit agencies. They’re far more flexible about minimum income levels (and we all know how low fresh graduates are paid). While you will still have to present some documents, at least you won’t immediately be dismissed just because you don’t happen to have 10 years of professional experience under your belt.
So students can get high risk loans…. But why then should they? For the simple reason that you may need the money, now. It happens frequently to fresh graduates, who are struggling to get on their feet, and facing financial responsibilities for the first time. For example, some students may be forced to relocate to pursue a good job, and the monthly rent may be just too high.
And then there are students who are thinking of starting a business. Even Bill Gates, multi billionaire, had to start somewhere, and budding entrepreneurs will soon realize that to bring their great ideas to fruition and somehow conquer the world, they’ll need more capital than what they can get from their saved over allowance.
There’s also the fact hat borrowing money from a high risk lending institution can help students build their credit history. Each time you borrow money, and pay it faithfully and on time without the creditor sending a battalion of collectors to ram down your door, your credit score goes up. In that context it may actually be to your benefit to borrow from a high risk lending agency, even if you aren’t technically desperate for cash. Borrow a small amount and pay It back right away, and then you are on your way to that flawless credit situation.
Now
don’t be ashamed about having to get a loan. It happens more frequently than
you think, and students in particular find themselves in situations that may
need money right now. Let’s say a sharp increase in tuition rates throws off
your carefully prepared budget. Or maybe there’s a big opportunity — like a
semi-scholarship to complete you final semester in
Perhaps you’ve been living off campus, and your roof starts leaking. Or your car breaks down and you need it to get around—and it’s a choice between filing for a high risk job or losing your job just because you have no way of getting to work.
While high risk loans bring with it certain responsibilities (if you miss a payment, you lower your credit history, incur big late fees) and should be paid off fairly quickly because of the interest rates, they can be a godsend to students. When traditional lending institutions close the door, then high risk lenders offer opportunities that students didn’t even know they had. It’s definitely worth looking into.