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TYPES OF LOANS TO AVOID
Need some extra cash? Whether you use your paycheck
as security, utilize the
equity in your home, or pawn your
engagement ring, you need to proceed with caution.
There are many different types of loans out there, some
of which will cause more financial duress than relief.
Below are some of the most common types of loans you
should look to steer clear from.
Payday loans
Typically known as cash advance loans. These loans are
issued against your paycheck. Meaning, the funds are
going to be directly withdrawn from your bank account
the instant your paycheck is electronically deposited
in. These loans are for short-term emergencies and
usually range between $100-1000. The annual percentage
rates associated with these loans are ridiculous,
usually around 550%! For example, on a finance charge of
$100, you will be charged around $25!
This type of lending is like a drug for many borrowers.
Resulting in them applying for payday loans to pay off
past payday loans. The cycle never ends....
Before you even consider applying for this type of loan,
we suggest that you compare the fees and costs amongst
several different lenders. Ask as many questions as you
need until you are 100% certain you how much it is going
to cost you to borrow money. Under the Truth in Lending
Act, the cost of cash advances must be disclosed.
Pawnshop loans
These types of loans are secured by a personal piece of
property and typically carry terms ranging from 1-5
months. Interest rates are going to vary from state to
state and can range from 2 - 25%/month! Pawn shops are
required by law to offer a grace period. The item used
as collateral is going to be sold if the loan or
interest is not paid within a specific time frame.
The national average amount of a pawnshop loan is between
$50-100 with over 75% of borrowers getting their
property back.
Title loans
These loan types are secured by the title of your
car. The amount you can borrow will be determined by the
lender based on the value of your vehicle. Car title
loans typically range from $250-1500, but can also go as
high as $15,000. Loan terms are usually 30 days. If you
neglect to make the payment, the lender is going to
repossess your car.
Interest rates are going to vary from state to state.
For example, fees associated with Florida law allow
lenders to charge a fee of 30 percent per year for the
first $2,000 borrowed; 24 percent per year for any
amount borrowed between $2,000 and $3,000; and 18
percent on any amount borrowed above $3,000.
Utilizing a car title loan puts you at extreme risk. If
your
payments are late, you will lose your car no matter
how much your vehicle is worth. This possible result is
not worth borrowing for a few hundred dollars! Learn
more about
auto equity loans.
High LTV home equity loans
You are securing your loan with the equity from your
home. However, you are obligated to pay more than the
equity is actually worth.
Houses hardly ever sell for more than their
fair market value. Therefore, applying for high LTV
home equity loan is a big gamble. Lenders view these
types of loans as high-risk, thus interest rates are
higher than traditional equity loans.
Borrowers will owe more than their home is worth with
these types of loans, similarly to becoming
upside down on your auto loan. Even though these
loans are great if you are looking to satisfy financial
issues, or obtain a large amount of cash for repairs
and/or purchases, you need to proceed with caution. You
never know what can happen that would result in you
having to sell your home, i.e. divorce, job loss,
spousal death, etc..
Please note that Star Loan Services offers extremely
affordable
125% value equity loans. Please fill out a free
request for a
no obligation quote to see how we can help you. Your
credit is not going to be checked when you submit your
application.
Advance-fee loans
These is a service which companies charge to help
borrowers with bad credit find a lender that will issue
them a loan. These companies usually claim high rates of
success. However, if you are thinking about utilizing
one of these services, do your homework! Check the
history of any potential lender with the BBB. Otherwise
you run the risk of being conned.
Home Loan Fraud
There are also many different
mortgage loan scams that buyers and sellers need to
be aware of.
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