7/22/2017

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6 Types of Loans To Avoid

People often turn to high interest loans when they have less than perfect credit, are unemployed, or have high debt burdens.

When people can't pay their bills, need gas to get back and forth to work, need to pay off a gambling debt, or just need some money in their pockets to hold them over for a while, they often turn to certain types of lenders that are set up to give loans to people who are struggling. They may have bad credit, a lot of debt, need some quick cash, or find themselves in other financial holes.

Although legal in some states, these lenders will often take advantage of people who are desperate and will leave them in a much worse financial position than they are already in. These lenders should be avoided, if at all possible, due to the high costs of their loans.

To be fair, these types of loans are, at times, the only alternative for people who are in need of money, a car, furniture, etc. They can be an avenue for keeping and maintaining a certain lifestyle when all else fails, but they are expensive.

These lenders include:

(1) Payday Loans: These companies give loans in which the borrower writes a postdated check that coincides with his or her next pay check. The loan is smaller than the next pay check and high fees, $10 to $15 dollars per day. These loans are relatively easy to get but are very costly, especially if you miss the payday deadline.

(2) Bad Credit Loans: These lenders are not your everyday banks, savings and loan associations, or credit unions. They make loans to people with bad credit who can't get a loan from other sources. Their interest rates are higher, their repayments times are shorter, and they usually have stiff prepayment penalties.

(3) Cash Advance Loans: These lenders approve cash loans quickly and without hassle if you are 18 years or older, currently employed or have a steady income of a certain amount, and have a bank account with your name on preprinted checks. High interest rates makes it difficult to pay back this type of loan and many borrowers find themselves trapped in a vicious loan cycle.

(4) Bad Credit Auto Loans: These lenders provide car loans for people who have bad credit or no credit at all. Most provide loans to independent car dealerships and have strict underwriting guidelines. Their interest rates are high which means higher than normal payments, and they will repossess a car quicker than other lenders if you are late on your payments.

(5) Car Title Loans: Car title loans are basically cash advances using your car as collateral. There is usually no credit check required and the loan is issued quickly, usually for 30 days. In order to get this type of loan, the borrower has to own his or her vehicle outright. The amount of the loan is usually much less than the actual value of the vehicle with high fees and interest rates.

(6) Rent-To-Own: These companies specialize in offering furniture, electronics, kitchen appliances, and other items to people who end up paying many times the costs of what the true value would be if they bought the products at a retail store. The key to getting people spend their money in these stores is the phrase, "Rent-To-Own." The rental prices of the products are high and most of the time, the furniture is never completely paid off. It is usually taken back by the Rent-To Own store. In essence, many unsuspecting renters never actually get to own what they are renting.

There are many other types of high interest lenders and other services that are popping up everywhere. As stated above, these companies are legal in certain states and illegal in others. As a consumer, you should always be cognizant of what is going on around you and look for most cost effective loans and services that fit your needs.

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