Fast Loans aren’t Always Good Ones: Here’s Why
Loans today enjoy a faster approval process, so it’s rarely necessary to select a lender based on advertising claims of fast loans or quick approvals. Faster approvals can encourage reckless behavior and convince normally cautious people to borrow more money than they can afford to repay. The faster the loan, the more likely there are negative issues associated with getting the loan. These usually involve higher interest rates, short repayment periods and lump-sum repayments that must be made from the borrower’s next paycheck.
Sometimes these loans require collateral–such as automobile title loans–and this means that you could lose your car in just a few weeks while still paying an extremely high interest rate. Some fast lenders online follow predatory lending practices such as encouraging you to take out multiple loans or roll-over your loan while just paying the interest charges. The latter practice could trap you in months or years of debt for a relatively small amount of money.
Understanding the terms of your loan, the annual interest rates and what you’re expected to do is critical, and speedy loan approvals can cause you forget to read the fine print.
Alternatives to Fast Loans Online Could Better Serve Your Needs
There are many alternatives to getting fast loans online, and responsible borrowers should exhaust these alternatives before closing on any type of loan–including short-term loans for emergency cash needs. Borrowers–flush with easy cash from various types of loan products–often waste money, spend cash on luxury items and party with the extra cash. This applies to all types of loan products and not just short-term loans.
College students, according to a report posted at Clark.com, are increasingly using their student loans to buy clothes, take vacations and party with drugs and alcohol. About 40 percent of students indicated that they were willing to use their loans to pay monthly expenses, and 13 percent admit that they use loan money to dine at restaurants.
Mortgages have become easier to get online, and some companies offer to close on a mortgage within seven days according to a report at Tbrown.fmlending.com/blog. The risks of getting a fast mortgage online mirror the excesses of the mortgage crises of 2008-2009. These risks include:
- Failing to perform due diligence such as inspecting the home, getting a second assessment, etc.
- Expediting the closing date, which prevents competitive shopping and pricing
- Competitive purchasing options, which could get you into a bidding war
- Lack of time to investigate multi-contract scenarios
Fast loans online can be dangerous because they encourage reckless behavior and don’t give a person enough time to study the loan agreement, consider alternative financing arrangements or analyze his or her own budget. Faster loans usually carry higher interest rates or other negative terms, so you should always examine the pros, cons and loan alternatives before closing on a loan.
Understanding the Pros and Cons for Fast Loans Is Critical to Avoid Debt Traps
An informative article posted at Finance online.com warns of the dangers of getting fast loans. Without going into morbid detail, the article covers cases of four people who killed themselves and/or committed murder after getting deeply into debt. These are worst-case scenarios. Most people face less severe but extremely troubling consequences when they take on too much debt or get loans with high interest rates. These negative consequences include:
- Not being able to repay your short-term loan as agreed and needing to borrow more money to survive
- Higher interest rates than you’d normally accept on a loan with a longer repayment term
- Giving up your rights to sue the lender for abusive practices
- Facing aggressive debt collectors that call from different numbers many times each day and use other unethical or illegal collection practices
- Spending more money on frivolous items that you don’t need
- Defaulting on a loan and damaging your credit
- Getting loans from certain lenders that could lower your credit score
- Closing on loans that have variable interest rates, balloon payments and other unexpected features
Auto Financers and Student Loan Lenders Suffer from the Same Misguided Borrower Decisions
Fast loans online aren’t the only loan products where faster approvals could generate severe problems for the borrower. Almost every loan product has hidden or unexpected fees. A report at Money.usnews.com explains that hidden fees are common in auto loans, mortages, student loans and personal loans. These include the following costs:
- Service charges
- Application fees
- Prepayment penalties
- Collection fees
- Loan origination fee
- Credit insurance
- Fees for late payments
- Returned check fees
- Closing costs
- Gap insurance
The hidden costs of fast loans online can add up quickly, so it’s critical to understand the terms of your loan. The fastest loans might offer terrible deals for borrowers, but many people just don’t take the time to study the loan agreement.
A Simplified Loan Application Process Generates More Time for Decision-Making
An article appearing at Avoka.com recommends that lenders streamline their application processes to allow applicants to apply anytime and anywhere from their mobile phones. The digital revolution has transformed how lenders operate and approve loans, but that does nothing to improve borrower’s decision-making skills.
An article posted at Thebalance.com recommends that borrowers always take time to consider key issues before taking out any kind of loan. Questions that borrowers should ask themselves include:
- Do I really need the money?
- Can I reduce expenses or buy something less expensive?
- Are the payments affordable?
- How long am I committing to this obligation?
- Are there any hidden fees?
- What effect will this loan have on my credit score?
Getting Help when Your Debt Becomes Overwhelming
Self-help is the best strategy when dealing with your finances. If you can’t meet your obligations, you can ruin your credit, generate intense stress, pay more than you can afford and get trapped in a cycle of debt. If you do get trapped, contact a legitimate credit counseling organization to try to work out a repayment plan with your creditors. In some cases, you might benefit from getting a debt consolidation loan or a debt management plan, but you should only pursue the latter with a certified credit counselor.
It’s critical to study any loan agreement, assess your ability to repay and consider whether alternative financing arrangements would save you money or prevent getting into further debt.