Housing ReliefSure, but some risks come with such financing that you should be aware of before you start shopping around for loans.
Where can you turn if you lack savings to pay your bills or emergency expenses? Some say friends and family are your best bet, but we all don’t have such options at our disposal. Where else can you turn when friends and family can’t help? You could ask for an advance on your paycheck from your employer. Or you could even apply for a low-interest credit card. But if none of those options are available, a personal or payday loan may be your last resort.
Should personal and payday loans be avoided at all costs? Not necessarily, because as you’re about to see, each has benefits for borrowers. But personal and payday loans come with risks as well, and you’ll have to decide if they are worth taking before you apply for these types of quick, convenient, and sometimes notorious financing.
The Risks Of Personal Loans
A personal loan can give you a ton of cash in a bit of time, and that alone is risky. Why? Because if you don’t really need the loan, you could find yourself overwhelmed when it’s time to pay it back.
Personal loans are unsecured loans that can come in handy for large purchases since they range between $1,000 and $100,000. Many times, you can use a personal loan as you’d like. But unless you have a specific need for the loan, like to pay for your wedding, vacation, home improvements, business financing, medical bills, funeral expenses, or other emergencies, you could get yourself into trouble down the line.
If your credit is less than ideal, your personal loan’s APR could go as high as 35 percent. Add on possible origination, late, and prepayment fees, and you could be looking at quite the costly loan. Fail to pay it on time, and your credit score will suffer.
The Risks Of Payday Loans
Although payday loans won’t necessarily put you into instant deep debt since they max out at $500, their exorbitant costs could cause you financial headaches.
The fees on payday loans typically range between $10 and $30 per $100 borrowed. That’s pretty costly, but if you do not repay the payday loan on time with your next paycheck, you may have to roll it over and take out another loan. This is where people get into massive trouble with payday loans, as their APRs can skyrocket to 400 percent or even higher.
So, while that payday loan helped you get quick cash with no credit check to pay a bill or two, it could end up costing four times (or more) what you received, putting you in a vicious cycle of debt that many others cannot get out of.
What’s the moral of the story? Only apply for a payday loan if you know you can pay it back within the required two to four weeks. If not, avoid it, as the loan costs will worsen your financial situation.
