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What are some facts about high-risk unsecured personal loans?

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Quick Answer

High-risk unsecured personal loans provide funds to borrowers with bad credit histories and no assets, according to Loans.org. While many loans require collateral in the guise of cars, property or other goods, unsecured loans are so termed because they do not require this, making them riskier for lenders than traditional loans.

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Full Answer

If the borrower defaults on the high-risk unsecured personal loan, the lender has no assurance that he can recover the value of the loan, explains Loans.org. To cover such a risk, these loans often come with very high interest rates, up to 100 percent annual percentage rate in some instances. Unlike other loans, credit history is not often a major factor in the approval of the loan, although it likely determines the amount of the loan and the interest rate charged.

High-risk unsecured personal loans are advantageous for a borrower with a bad credit history because if he pays off the loan according to the set terms, his credit score improves, adds Loans.org. The economic recession that began in 2007 led to a marked increase in the frequency of applications for these types of loans because many borrowers had fewer assets with which to obtain secured loans. Many high-risk unsecured personal loans are available through online applications, with the funds deposited to a bank account within 24 hours.

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