Most of us have been in situations where we needed money in a hurry – whether it was a medical emergency, car repair, etc. Fortunately, there’s lot of options available when it comes to needing an influx of cash, including taking out loans.
That said, some loan options are way better than others.
Let’s cover two types of loans that you should avoid – and a strong alternative to those loans that you should consider the next time you need money suddenly.
Be Very Leery of Payday Loans
You might be more familiar with payday loans because of their storefronts that are often found in strip malls. They certainly lack the warmth and charm of your neighborhood credit union or bank.
Payday loans are high-interest, short-term loans that are designed to be repaid with borrowers’ next paychecks. Payday lenders require only proof of identification, income, and a bank account. This makes payday loans an attractive option for those who have bad credit or no credit.
However, payday loan interest rates can range from 115% to 650 %. Combined with the fact that payday loan amounts typically are small ($500 or less), it can be challenging to re-pay them off in time.
In addition to late fees, payday loans usually also come with hidden fees that can add up quickly. As a result, many borrowers often find themselves stuck in a cycle of debt that’s difficult and expensive to break.
And paying on time won’t help a borrower’s credit score because payday loan vendors don’t typically report on-time payments. But if they default on a payday loan, their credit score can be impacted negatively. Payday loan vendors will report that to the credit bureaus or sell the debt to a collection agency that will report defaulted loans.
Many financial experts consider payday loans to be predatory and recommend you seek other options if you need money in a hurry. One such option to consider is personal loans.
What are Personal Loans?
You can apply for a personal loan at most credit unions and banks. In most cases, they are unsecured loans with fixed interest rates, which are much lower than payday loan interest rates. The better your credit score, the better the interest rate you’ll get. You can use personal loans for a wide variety of needs. Common uses for personal loans includes paying off other debt, medical emergencies, and weddings.
And if you’re worried about your credit history, secured personal loans are an option, meaning you can put up collateral to help secure the loan.
For more information on personal loans, check out our recent blog article that went in depth on the topic.
Get a Personal Loan Through TwinStar Today
If you need a personal loan, TwinStar can help! We offer personal loans up to $50,000. To see our latest rates, visit our personal loans page.
To apply for a personal loan, call us at 800.258.3115 or visit your local TwinStar branch today.
Avoid Loan Sharks at Any Cost
Believe it or not, loan sharks still exist – and they can be dangerous as ever. A loan shark is a person or entity that loans money at high interest rates and will use threats of violence to collect repayments or debt. While organized crime has declined in the United States, many loan sharks are members of organized crime groups.
Loan sharks often target people who live paycheck to paycheck, are in desperate financial need, or can’t borrow money from legal and regulated lenders. In recent years due to the housing crisis, loan sharks have increasingly targeted low-income families.
Because they are unregulated, loan sharks don’t require background checks or credit reports. They are focused on lending large amounts of money with the intention of gaining high levels of interest in a short amount of time. While that may be tempting if you have bad credit, we strongly encourage you to stay away from loan sharks.
Not only is it usually illegal to deal with loan sharks, but they can choose to collect debts at any time and can resort to violence to get their money back. The potential danger to you or your family is not worth it.
Explore All Your Options When Choosing a Loan
Before you rush out and get a loan, make sure you can afford it, meaning can you repay it on time? If not, can you borrow money from a family member or friend? Are there community organizations that can help you?
It’s also worth asking your credit union or bank if they offer smaller loans. More financial institutions are offering loans for smaller amounts with emergencies in mind. If not, then you should strongly consider an unsecured or secured personal loan.
Personal loans provide more flexibility and predictability, which is important when you are taking on debt and needing to repay it on time. When you are strapped for cash, the last thing you want is to worry about are predatory practices, which are commonly associated with payday loans and loan sharks.