Sometimes, we all need to borrow money to pay all our living expenses and debts as well. It gives is a temporary financial relief, but it does not solve the money problems at all. Remember that there is no easy way to do proper budgeting, and avoiding loans will not help.
However, we should all be cautious about instant loans because there are some who are not helping us financially at all. Instead, it adds burden to our already grieving money problem. Common thing about these bad loans is the extraordinary interest rates.
Below are some of the bad loans we should all be cautious about.
Advance fee loan
This kind of loan works by paying sometimes as much as several hundred dollars to the lender. Some money lenders take the money and will never offer anything to the person, and others just give a very high interest loan. Remember, traditional money lenders do not make this kind of loan.
It may be a short-term loan but it has a very high interest rate. A person give an item he/she owns to the pawnshop, and it will lend you a money based on percentage of the item’s value. At the end of the loan period, if a person who will not be able to pay the loan with interest, then the pawnshop will not give back the item and sells it with interest as well.
Car Title Loan
Car title loans work like this, customers borrow money with high interest rate (30 percent maximum) and the loan payable due is just in 30 days. For the car company, they will ask the client to sign over the title to a paid-for vehicle, wherein there is risks repossession of major family asset according to Consumer Federation of America. Usually, the loan amount is just a fraction of the car’s market value.
A lot of casinos are offering interest-free and fee-free lines of credit that is designed for gambling only. If a person would like to avail this offer, he/she must have the cash in his/her checking account and he/she prefers not to carry it. “Casino Gambling for Dummies” Cheat Sheet advised people not to borrow money while in the middle of gambling because the chances of losing is really high. Compared to money lenders, casinos generally possess a legal claim on a person’s property if the he/she was not able to pay.
Mobile home loans
If a person is having a hard time getting mortgage, and do not like to stay in an apartment, he/she must stay away from mobile home loans. Mobile home loan is considered as bad loan because the rates given to client is high as 19 percent for 20 years. This is a typical rate but more expensive compared to a 30-year loan at a traditional interest rate. The property loses value so fast that a client cannot refinance anymore. This is also similar to car loan that has no protection against foreclosure because the lender can bring it back to them.
Lotto Winner Loan
Lotto winners must watch out for their money because they can be victimized through a “loan.” Money lenders go after people who are lucky to win lotto jackpots, and ask them to pay gradually over the years. The lender strategy is to buy the lotto winnings for upfront payment, pressuring the winners to sign off on a sum that is much lower compared to their winnings.
There are banks which encourage their customers to get “overdraft protection.” It is the bank’s program that lets the clients to write a check or withdraw funds from an ATM even if they do not have any funds on their checking account. Financial advisers like Tim Chen, CEO of NerdWallet, says that people should never do this.
When a client agreed to the program, the bank will charge him/her for a fee. Usually, they charge $35 for the transaction and the succeeding ones on the account until there is no left in the balance. Client may end up paying even higher rates for this overdraft loan that is not intended to further enhance his/her finances.
These bad loans are really bad, and consider them as the very last option.