No-one wants to be in a situation where it is necessary to take loans but some loans are definitely worse than others. Some of them have exorbitant interest rates and others keep enticing you to borrow and spend more. It is best to avoid the following loans.
1. Payday loans
Payday lenders make most of their profit on customers who keep rolling their loans over. This means they have to pay back much more in interest and other fees and are often left struggling to pay for essentials.
The lenders present these loans as a solution to running out of money before the end of the month but they can impose substantial costs on uninformed borrowers. Payday loans can keep them trapped in a long term cycle of debt.
A payday loan is very different from a personal loan. A personal loan is taken out over a much longer period, typically two years, unlike a payday loan which is very short term.
Taking a personal loan can be a good idea when it is used to reach a specific financial goal. MatchFinancial.com gives you the option to compare personal loans and find one that is right for you based on your credit score and other factors. Comparison shopping can help you to borrow money wisely.
2. Pawnshop loans
Pawnshops accept items like cameras, jewelry and many other personal items as collateral for a loan and keep the items if the loan is not paid off in time.
The interest rate for these loans can be extremely high and pawnshops usually also charge service and storage fees. People often end up paying more than the market value for items and then lose the items anyway because they cannot pay off the loan in time.
3. Casino loans
Many casinos offer interest-free lines of credit that clients can use to gamble. If you borrow money to gamble, the chances are high that you will lose it and end up in a worse situation than before.
You should only ever use a line of credit if you already have the money in your bank account but prefer not to carry it on you. Like any other lenders, casinos can put a lien on your home if you cannot pay. One bad day while gambling can have serious financial consequences.
4. Car title loans
Car title loans are some of the most expensive kinds of credit as lenders target borrowers who are desperate for cash and willing to pay a really high price to get it. If you take a car title loan, you borrow money at a really high interest rate and the amount is usually due in full within a month.
You sign over the deed for your vehicle that you have paid off as security for the loan. The problem is that if you cannot pay in time, you risk losing an important asset.
As with payday loans, title lenders often allow you to pay only the interest and roll over the principal to a new loan. This traps you in a cycle of escalating interest and fees. The amount of the loan is also generally only a fraction of the value of the vehicle.
5. Credit card cash advances
A credit card cash advance may be extremely appealing because it is instant with no paperwork to fill out or difficult face-to-face consultations to endure. However, these advantages come at a big cost. The interest and fees are very high. The average fee is from about $10 to $20 and the interest rates you pay are usually higher than your credit card interest rate.