Types Of Fast Loans
First, let’s take a look at the different types of loans that we are talking about. Below are the three easiest loans to get if you have bad credit and need money quickly. These loans can get you money fast but they are not to be taken lightly. Their usefulness quickly goes away if they are misused.
Unless you have been living under a rock, you know all about payday loans. They are the ultimate in fast cash for those with bad credit. Just provide a checking number and show that you have income and you are just about guaranteed an approval.
Loans are limited depending on the state that you live on with some states completely banning these loans due to the high APR’s and predatory practices of some lenders.
Just as easy to get as a payday loan, all that you really need is a free and clear car or truck title. Your title is used as collateral which mitigates a lot of the risk for lenders which is why these loans are so easy to get.
Just like with payday loans, the terms and limits of these loans will vary from state to state and these loans are illegal in many states.
Last but not least is the small dollar payday loan. With these loans, a pawn shop will make you a loan with your property being the collateral for the loan.
These loans are more available than other fast cash loans but they are still regulated by the state. Because of the collateral required, most of these loans are small dollar loans that can get you 200 dollars or less.
Problems With Fast Cash
Fast cash can solve a lot of problems in an emergency and yes, it is true that many people have been helped out with emergency loans. Having said that, these loans are also abuses which is a huge mistake. Here are a few reasons that you should not abuse an emergency cash loan.
They Have A High APR
First and foremost is the high APR. Many people think that the APR is the interest rate of the loan but this is not exactly true.
APR stands for Annual Percentage Rate. It is the effective interest rate if you add in all loan fees, interest and charges and carried the loan out for an entire year. The APR was created to better allow consumers to evaluate loans with different fees and charges. A loan might, for example, have a low interest but a high APR, because of the fees and charges.
Bad credit loans are high risk loans for lenders and have notoriously high APR’s. Lenders are limited, in many cases, by the interest that they charge but not necessarily the fees.
Although rates will vary from lender to lender, most payday loans come in at around 400 to 600 percent APR and most title and pawn loans come in at around 200 percent. Some loan APR’s can be higher though which is why caution should be used and why these loans are unsuitable for non emergency situations.
They Have Short Terms
Next on the list of problems is the term of the actual loan. The longer a loan goes on, the riskier it is for the lender involved. As time goes on, things change and a borrower who can pay for a loan initially, may become unable to do so.
Because of this, lenders try to keep loans as short as possible. Payday loans are for two weeks or less and title or pawn loans are usually for around a month.
The problem with a short loan term is that the payments will be larger. These larger payments can take a big chunk out of your regular paycheck and can make it hard to pay your regular expenses. This can often lead to people having to take out multiple loans in quick succession.
Loss Of Property
Pawn and title loans are secured loans. This means that if you can not pay the loan, they can seize your property.
In the case of a pawn loan, this is usually a nuisance. You probably pawned something that you want to get back but if you do not get it returned, you can move on.
With the title loan, the loss of a vehicle can be devastating. If the vehicle was the only one that you had, it could mean that you are no longer able to get to work, pick up your kids, go grocery shopping, etc. Get 2000 dollars from a title loan and lose your 6000 dollar vehicle, this could be a very bad thing if you are not careful.
Although payday loans are not secured, defaulting on them comes with the potential loss of a checking account. Your lender will try to withdraw money automatically on the due date. If the money is not there, this could result in overdraft fees, potentially multiple fees with multiple attempts. This can effectively shut down your checking account. That would leave you vulnerable to collection actions from your lender and your bank.
When Is Fast Cash Okay
As you can tell by now, fast cash loans have a few benefits but many drawbacks. The important thing is to know when to use them for your financial good. Yes, even a high APR loan can be put to good use. Here is when you should and should not use them.
When A Fast Cash Loan Is Good
There are times when money is a good thing, even with high fees and interest.
One such an occasion is if you are about to lose your home or even your only source of transportation. If you face eviction or you need money to repair a vehicle that takes you to work, getting a $500 loan, even with high interest, might be a good thing.
Another occasion when a high APR loan might be useful is if the fees from not having the money are higher than the cost of your credit. Being late on rent could be one example. Even if you are not facing eviction, the cost of being late with a rent payment could be $30 to $40 a day and that adds up quick.
When A Fast Cash Loan Is Bad
You should never take out a high APR loan for something that is not a complete necessity.
If you can do without the money or make other budget cuts to get by, you should do that instead. Even if you think that you will have the money to pay the loan back, this is a huge financial mistake and the money could better be used somewhere else, like in credit rebuilding.
In addition, if you think that you will not be able to pay back the loan, you should turn it down. Even if you need the money, you would just find yourself in an even worse position a few weeks down the road.