If you need some extra cash to cover the costs of your bills or to make a large purchase, you may consider taking out a loan. This can be a great way to get the money you need now and pay it back over a longer period of time. However, not all loans are worth the cost it takes to borrow and it can end up costing you hundreds or thousands of additional dollars. Often time’s people with little or poor credit enters into loans that promise instant cash and no credit check. While these loans can seem great at first, reading the fine print will help you discover why it is best to stay away from these loans.
Here is a look at the top two ways to borrow money that should be avoided at all costs.
Payday loans are perhaps the worst type of loans available on the market. These loans are offered to practically anyone who receives regular pay from an employer each week. The payday loan company provides the instant cash up front, and then automatically takes their share out of out of your weekly earnings. They always advertise instant cash, a quick application process and no credit check. While this can sound like a perfect solution, especially for those who have been rejected for other types of loans, payday loans can be very costly. In fact, some of these types of loans charge interest rates as high as 1,000% APR.
Reading this in the fine print should be enough to keep some people away, but all too often people are in a hurry for the money and do not read all of the rules and regulations. To make matters worse, payday loans attempt to keep people in a continuous circle of debt, by offering a simple renewal process. This means that they claim to make things easier for you by lowering the amount you owe each week and extending the timeframe to pay it back. Again, this sounds great, but with each payment, you will be accruing more and more interest.
This type of loan is currently under a lot of scrutiny from consumer watch groups, who are pushing the government for stricter regulations. Especially as these lenders target the young, desperate and those on welfare who are unaware of other loan options for people on benefits.
Logbook loans are quite similar to the payday loans, accept instead of using your weekly earnings as collateral, they use you vehicle. These companies also offer quick and easy cash, even if you have a bad credit rating. However, just like payday loans, they charge an extremely high interest rate of 500 per cent. You also need to pay additional fees that may goes as high as £100, which they will add to your loan. The biggest problem with this loan is the fact that you are using your car as collateral, meaning that if you cannot repay the original loan plus all the added interest by the due date, the company has the right to come and take your vehicle. In order to obtain this type of loan, you will need to sign a Bill of Sale, which virtually gives ownership of your vehicle to the lender until the loan is repaid. Due to this Bill of Sale being a requirement, you will not be able to seek any legal recourse against the company if they come and take your vehicle. This is a very dangerous type of loan that should never be used.
Both the payday loan and the logbook loans should be avoided, and should not even be considered as a last option. If you are having trouble paying your bills, the first step should be to talk to the companies you owe money to and try to work out a payment plan. Many companies will be willing to work with you as a means to getting their money. If you do opt for a loan, just be sure to read everything and make sure that you can afford to make the necessary payments on time.