It’s normal for people who are going through financial difficulties to seek loans.
Although there are dozens of loan options to choose from, you probably don’t want to take a loan that will spell doom for your financial situation in the future.
Avoiding risky loans is a financially responsible choice so as to avoid getting stuck in the pitfalls of debt.
Some common characteristics of bad loans include exorbitant interest rates, extremely short repayment plans, and dire consequences for defaulters.
Thankfully, by avoiding risky loans such as those discussed below, you will steer clear of insurmountable debts.
1. Payday loans
By far, taking payday loans is one of the riskiest financial decisions you can make. A payday loan gone wrong is financially devastating, unlike any other type of loan you have known before.
Annually, statistics show that roughly 12 million Americans apply for these types of loans. As high as $7 billion is paid on the loan fees of payday loans. Astoundingly, the interest rate for these types of loans is usually disguised using terms like “fees,” which could start from a whopping 200-500%.
Payday loans are relatively easy to obtain and can be deceptive, causing you to borrow money for the rest of your life. Do you want to avoid worsening the financial situation in your family? Well, resist your urge to take a payday loan.
2. Cash advance loan
Most people such as restaurant operators, mechanics, and law maintenance specialists, settle on cash advance loans because their business requires cash to operate.
Here is how it works: your card will need to have a cash credit line with an amount that you can withdraw from the ATM or bank. The bad news here is that the fees are massive.
As if that’s not enough, you will also have to worry about the advance cash loans’ interest rates. At a point in time, you may be strapped for cash if an illness or an unforeseen circumstance affects your income stream or business.
3. Car title loan
A car title loan is another terrible loan scheme you don’t want to entertain. In fact, they are notoriously awful loan options that you may not dream about. So, what’s the deal?
Well, you borrow money at an insane interest rate (as high as 300%), and this loan will be due in about 30 days. As security, the borrower uses their car to sign over the title, which is a terrible financial mistake!
The obvious risk here is that the borrower risks losing possession of their vital family assets; car title loans often lead to forfeiture of thousands of cars every year.
4. Casino loans
Some casinos offer zero-interests and free-fee lines of credit which people can only use to gamble. You may be tempted to take this offer if you have some cash in your checking account and feel like you don’t want to carry it.
But, does it really make sense to borrow money to play a game of chance? Probably not, and the chances are that you will end up losing it all. This can aggravate your financial situation in the middle of this pandemic.
As other lenders do, casinos may have the right to put a lien on your house if you fail to repay your casino loans. Consequently, you may stage a bad financial future for yourself simply because you went to spin the wheels.
5. Private student loans
Private student loans may help poor students finance their college education. However, you may want to ensure that you don’t sign up for a terrible private student loan package. Instead of turning your attention to private lenders, why not take advantage of federal loan programs?
While government loans come with subsidized interest rates and friendly repayment models, private student loans come with high-interest rates and strict terms and conditions.
No wonder the Consumer Financial Protection Bureau keeps advising students against unfavorable private loans. Bad private student loans can cripple students’ ability to gain control over their finances after their graduation.
6. No-credit-check loans
As the name rightly implies, a no-credit-check loan is attractive but deceptive. When you need quick money for something but have a bad credit history, no-credit-check loans can tempt you to make a wrong move.
From one angle, these loans may look like the perfect answer to your financial struggles, but they are not. No-credit-check loans are expensive, and they may leave you in a deplorable state if you don’t take care.
Before lenders may give you no-credit-check loans, they will assess your bank statements to understand the value of your paycheck. You may also be asked to provide collateral.
Auto-title loans are common examples of no-credit-check loans. They are bad because they are expensive, can trap you in debt, and expose you to scams.
7. Pawn Shop loans
Doesn’t it sound like a good idea to use your property, such as a flat-screen TV, as collateral for a cash loan from the nearest pawnshops? Well, probably, it isn’t!
Basically, a pawn shop refers to the business premise of a pawnbroker. They give loans with personal property as collateral. Although there is no need for a credit check, you will have to trust that your collateral will be in good hands until you are able to pay off the loan.
The problem is that many pawnshop loans come with huge interest rates, with some companies charging storage fees to keep your stuff until you finish paying your debt.
Eventually, the total costs of the loan will build up to dangerous amounts. And if you cannot repay your debt, you lose your properties to the pawnshop, meaning that your flat-screen TV or any other valuables will be gone forever.
It’s not bad to take a loan for a profitable venture, say a mortgage loan. However, don’t make the mistake of applying for a loan without knowing the costs involved.
Some real estate moguls use a loan amortization schedule to decrease their debts when working with mortgage loans, and that’s a good idea. Avoid these dangerous loan types, and your financial future will thank you.