If you stumble upon financial difficulties, you will find that there are several types of loans at your disposal; however, you should understand that there are loans that will successfully aid in overcoming those difficulties and there are loans that should be avoided.
Characteristics of loans that must be avoided include excessive interest rates, repayment times that are short, and potentially complicated consequences for defaulting.
By learning which types of loans should be avoided, you will be better equipped with the knowledge to choose among the loans that are ideal for dealing with financial hardships. Here at Somerville National Bank, we offer a number of safe loan alternatives for your needs.
We feel it is important to educate you on the loans that may prove detrimental to your financial health. In this two-part series, you will learn about the 5 types of loans that should always be avoided.
1. Payday Loans
Payday loans are one of the most financially devastating of all loan types. According to statistics, approximately 12 million individuals in the United States obtain these loans each and every single year. Approximately $7 billion is paid on the loan fees of payday loans.
The interest rates of these types of loans are often disguised under the name “fees”, and range from 200% to 500% – which is an outlandish amount! While these loans are exceptionally easy to obtain, once you do qualify and take one out, you will usually find yourself in a continuous loop of consistently borrowing over and over again.
If you are suffering from financial problems, this is the last type of loan that you should get involved with.
2. Cash Advance Loans
The next type of loan that should be avoided is the cash advance loan. Most individuals only opt for these types of loans because the individual or business that they are dealing with prefers cash. Examples include restaurants that operate locally, mechanics, and those that specialize in lawn maintenance.
You must depend on a credit card to obtain this type of loan. The card will have a cash credit line. You may take the credit card to an ATM or a bank to withdraw from the available amount on the cash credit line. The fees associated with these types of loans are often immense.
Additionally, you must worry about the interest rates on the advance loan.
There will come a point in your life where you are strapped for cash. That is a given. An illness or an injury may have resulted in your missing work, you may have been laid off from your job, or, you may encounter a financial hardship as a result of an unexpected event – such as a vehicle breakdown.
You will have the option of choosing from many types of loans to help you overcome your financial hardship; however, there are many types of loans that should be avoided at all costs.
In this installment, we have outlined the payday loans and the cash advance loans as the top two loans that should be avoided. Return next week to learn about the final three types of loans that should avoided.