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High risk personal loans are situations in which money is lent to people who have bad credit. They are referred to as "high risk" because this type of loan is riskier for the lender, since someone with poor credit is statistically more likely to default on the loan.

There are two different types of personal loans - unsecured and secured. Unsecured loans to borrowers with poor credit can be fairly difficult to arrange, as the potential for default is so high that most banks are not willing to take the risk of losing their money. This type of loan carries no collateral, which is a piece of property that is owned by the borrower. The rights to this property are temporarily signed over to the bank, which can then seize it if the payments are not made on the loan. Due to the absence of this type of guarantee, banks consider these loans extremely high risk, and assign extraordinarily high interest rates to them to make up for the high rate of default.

Secured loans, even to those with poor credit, are a different story. These guaranteed high risk personal loans carry less of a risk to the bank, as the property gives the bank a guarantee that it will eventually get its money back, either through repayment or by taking and selling the collateral. In most cases, it much prefers the former method because the process of seizing someone's property costs money to execute, not to mention the costs associated with auctioning said property.

Why might a person seek a guaranteed high risk personal loan? After all, due to the level of risk involved to the lender, the interest rates associated with these loans do not seem like it would be worth paying all of that money in interest to be able to have a cash advance. Often, however, emergency funds are needed to get a person out of a jam, no matter what their credit score is.

For a single parent who is raising a child, there never seems to be enough money. Because the family is relying on only one paycheck, this can be a tenuous position to be in, especially if there is an interruption in the wages of that parent. If he or she becomes injured and is unable to work for a while, that person's savings will usually only last so long, and a personal loan is then needed to properly care for the child and keep a roof over their heads and food on the table. In addition, other emergencies may occur that necessitate a quick infusion of cash, such as auto trouble. If one's car breaks down and there is no money to fix it, how will that person get to work to earn more money? People with bad credit often do not own credit cards, so they must rely on personal loans to bridge that gap until they can earn enough money to be able to pay off the funds needed to fix the vehicle.

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