Second Chance Loan

What is a Second Chance Loan?

A second chance loan, which can also be referred to as a near prime, non prime, or sub prime loan is a type of loan made to individuals who may have increased difficulty in either conforming to the repayment schedule or in paying the loan in full. Most of the time these defaults reflect individual set backs like: unemployment, divorce, medical emergencies, or other difficulties. It can also refer to lending to individuals with tainted or blemished credit history.


The most common usage for these loans is either to attempt to make it to their next pay day, which has resulted in these loans also being called pay day loans. Another usage is using the loan as a vehicle to repair or improve an existing credit score. Of course because of this increased rate of risk, a higher interest rate is standard in these kind of loans.

While the term sub prime refers to the credit quality of certain borrowers who are enabled to take on this particular loan, whereas other loans may be out of their reach; as far as credit scores are concerned, lender standards also take other factors into consideration such as :

  • the amount of money being lent
  • the way the loan is structured
  • the way the repayment plan is structured
  • the originator of the loan
  • the classification of the loan such as whether it is a; conventional repayment loan, a mortgage loan, an interest only loan, or an amortized loan

Definition of a Second Chance Loan:

In the United States there is no single referred to definition of what is a Second Chance Loan, the definition is normally decided by the borrower as they assess the risk and analyze the individual borrowers credit score. As a general rule when dealing with Second Chance Loans, any credit score under 640 is considered to be sub prime.

Second Chance Loans are more contested than any other loan simply because of the past examples of usury as in these subprime situations there is often little to no collateral.  This prompts some lenders to raise the interest rates to exorbitant rates, trapping some individuals in an endless loop of debt. So as with any agreement it is important to understand the terms and conditions of any contract you enter into.

Personal Experience with Second Chance Loans:

In my experience with these types of loans it is especially important to monitor yourself as the lending company I borrowed from was paid in full for the amount before I was scheduled to and so I accrued a fee for early payment which garnered interest without my attention being brought to the matter, that is until the monetary total of both fees and interest was almost as if I had never paid at all. So always do your self a favor and be sure to read all the paperwork and even follow up on the payment after they have received it, just in case any unknown fees are activated without your explicit knowledge.