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The pros and cons of high interest loans

Julie Lord

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If your only option is a high interest loan, is it worth it?

Access to finance can open doors for everyone, from helping you to rent a car, to paying for a new home. However, if your credit rating isn’t that good, or you’re not a particularly high earner, you might find that a high interest loan is your only option. If that’s the case, what are the pros and cons of high interest loans that you need to weigh up before making a decision?


Interest – the most obvious downside to a high interest loan, no matter what kind of lending you’re looking at, is that you’re paying an increased price to borrow that money with a higher interest rate. If you’re considering high interest loans then understanding the interest rate – how much you’ll pay per month as well as how much will clock up overall – is crucial to the decision making process.

It could take longer to pay off – with more interest to pay each month, the total amount you’ll repay to the lender will be higher. For most of us that means extending the term of the loan without a drop in the amount due every month. Whether this is affordable, and whether it makes sense for you, will depend on your finances and affordability.

You might struggle with repayments – if you’re in a position where you need a high interest loan for help with your finances then it’s crucial to make sure it’s affordable (with the interest included) so that you don’t struggle to repay.


It doesn’t always take longer to pay off – sometimes, high interest loans are structured to be short, sharp and quickly repaid. So, depending on how much you’re borrowing you might find that within the month – as is the case for payday loans, for example – you’re debt free.

You can have access to credit – a high interest loan offers the opportunity to access credit and that can have a number of very positive consequences. For example, you might be able to start the business you want to launch, to cover an unexpected monthly expense or to create a cash reserve where there wasn’t one previously. For many people, without high interest loans there wouldn’t be an opportunity to do the things that can turn life around.

Generating a positive repayment history – you may be restricted to high interest loans like unsecured loans or guarantor loans because you don’t yet have a credit history . Or it could be the result of mistakes with credit and lending in the past. Either way, being able to borrow a high interest loan gives you the opportunity to create a positive pattern of repayment that future lenders can look at and see a responsible and reliable borrower.

Creating confidence with your cash – According to online broker Solution Loans if you’ve had a bit of a patchy history with lending and ended up with a bad credit score, high interest loans for bad credit might be the first step towards being more confident and better at managing your money, now and in the future too. Showing you can repay a loan in full is good step towards improving your credit score.


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