7 Reasons why Easy Loans Should be Avoided at all Cost
Easy loans aren’t always the best financing option, and they’re almost never a wise solution when your income already doesn’t stretch far enough. The temptation to borrow increases as a direct result of how easy it is to apply and get approved for a loan. However, easy and quick loans should be avoided except in emergency situations. That’s why so many families from all socioeconomic classes are facing ever-increasing indebtedness.
Why Avoiding Easy Loans Is a Good Financial Strategy
Avoiding the debt of easy loans is just as easy as accepting it, so you need to consider carefully whether to borrow money–especially if you don’t really need the cash. According to a report at Investopedia.com, the total consumer indebtedness in the United States is rapidly shrinking the middle class. The Census Bureau reports that 41.5 percent of workers earned between $35,000 and $100,000 in 2015. The Urban Institute defines the middles class as families that earn between $30,000 and $100,000 for a family of three. However, that definition becomes meaningless when families have high percentages of debt in relation to their income.
Student loans have increased by 49 percent, and most consumers additionally carry high credit card balances that are subject to interest rates of 15 percent or higher according to a report at Nytimes.com. Add the costs of financing a home and mortgage, and even high-earning individuals face the prospect of taking on too much debt and falling out of the middle class comfort zone.
Seven Reasons to Avoid Easy Money Loans
Easy money loans can be insidious. Imagine that you see an ad for the latest Android, Windows or iOS phone. The price is out of your range and would destroy your carefully planned budget, but you really want to have the latest phone for bragging rights. You see an ad for quick loans and decide to apply just out of curiosity. The loan is quickly approved, the money is sent to your bank account and you order your new phone before you’ve really given the process much thought.
Now you have a large debt to repay including interest charges, loan fees and the principal. However, things don’t stop there. The new phone isn’t such a good deal because it requires peripheral accessories before it will deliver the promised benefits. You’ll also want to upgrade your phone service to take advantage of all the new features. You need more data, but that requires spending more money.
When your easy money loans are due, you’ve spent so much on the new phone that you can’t afford to pay your regular bills. Desperate for cash, you take out another easy loan to pay off your previous obligations. Getting into a debt trap is that easy. The following seven reasons show why it’s important to avoid easy-to-get loans:
- Getting into Debt Traps Has Never Been Easier
The application process for easy online loans is fast, simple and available 24/7 directly on your phone. Applying for a loan and getting approved are possible even with bad credit. Unfortunately, high-interest quick loans make the loan-approval process so easy that it’s hard to resist the appeal of instant cash when your cash runs out before the month does. Unfortunately, easy cash from loan products just exacerbates your financial difficulties. Too many people spend their easy cash carelessly, and then they face increased repayment obligations and added interest charges and fees.
If you can’t pay your bills, it’s easy to take out another loan to cover the shortfall. However, that just postpones the problem until next month when the new fees, principal and interest payments are due. It’s easy to get caught in one of these debt traps, and easy-to-get loans are the trigger that springs the trap.
- Creativity and Effort Can Solve Many Financial Problems Without Getting into Debt
You don’t have to mortgage your future by accepting debt. A report at Financesonline.com recommends trying creative financing ideas in lieu of getting a loan. Some creative financing ideas include:
- Asking family or friends for loans or a cash gift
- Working more hours to earn more disposable income
- Selling items you don’t need or use
- Eliminating duplicate services such as multiple Internet connections, landline phones, etc.
- Pawning items for emergency cash
- Using collateral to get a lower interest loan
- Borrowing from your employer
- Cutting costs
- Establishing and following a budget
- Comparing loan costs and interest rates
- Investigating business loan options such as factoring, attracting partners and investors, borrowing from peer-to-peer lenders, etc.
- Transferring credit card balances to new cards to take advantage of low introductory rates
- Using home equity to get a low-interest second mortgage
- Building a better credit profile by paying down debt
- Getting a temporary loan from your 401(k) or IRA
- Cashing in your insurance policy or borrowing against a whole life insurance policy
- Your Financial Profile and Income Won’t Support Unlimited Loans
Getting a loan online could compromise your ability to get money in a financial emergency, so you should never borrow for frivolous purposes. Easy-to-get loans are available for most people–regardless of credit rating–but these loans might not be available if your credit is maxed out or you have too high of a debt-to-income ratio.
Consumerfinance.gov reports that borrowers with a debt-to-income ratio that’s higher than 43 percent will generally have trouble repaying any additional debts. Even the most liberal online lenders might balk at approving loans for people with outrageously high debt-to-income ratios. It’s similar to the story of the boy who cried wolf–you might not be able to get help when you really need it.
- Easy Loans and Credit Encourage You to Spend Beyond Your Means
Different kinds of debt traps include loans with high interest rates and fees and lenders who use predatory collection practices. However, the biggest threat to your financial security is anything that you tell yourself to justify spending beyond your means. Self-generated debt traps, according to a report at Huffingtonpost.com, include:
- Using credit cards and personal loans as “found money” to buy luxury items
- Spending more of your credit card limit to qualify for credit card rewards
- Feeling that you have to own the latest electronic devices
- Taking out huge student loans that compromise your earning prospects after college
- Traveling the world to gain experience, which could guarantee you won’t get another chance to travel anytime soon
- Keeping up with the neighbors
- Buying a more expensive car than you really need
- Spending too much money on clothes, clubbing, drugs, alcohol and social activities
- Easy Loans Often Carry High Fees and High Interest Rates
Short-term loans, payday loans, automobile title loans and bad credit loans share some common characteristics–they’re expensive, cost more in interest and fees than credit cards and traditional loans and are just too easy to get. Flush with the opportunities to get easy cash, some people don’t compare loan products or choose which loans to accept strategically.
- Everything You Buy–Except Real Estate–Depreciates Quickly in Value
Some consumers borrow money to make what they feel are wise purchases or investments such as buying a new car, replacing household furniture and getting home repairs. However, everything drops in value almost instantly after being sold. Borrowing money to buy consumer goods is almost never a wise decision for the following reasons:
- You pay interest on the loan for assets that are decreasing in value.
- Consumer electronic goods often become obsolete within days or weeks of buying them.
- Making do with used items can save an incredible amount of money.
- Looking your best doesn’t depend as much as going into “shopping debt” as it does on good taste, careful grooming and taking care of the clothes that you have.
- You can get better deals on many items by saving enough cash to buy products outright or put up a larger down payment.
- Quick Loans Encourage Impulsive Buying and Shopping
The easier it is to get a loan, the more tempted you will be to make impulsive buying decisions. When you save money to buy something, it’s far more likely that you’ll take time to research the product and shop for the best value. An easy infusion of cash encourages you to buy on impulse without comparing prices, checking the warranty and reading online reviews.
When to Consider Getting Easy Online Loans
There are times when getting easy online loans is justified. You should always think strategically when making critical financial decisions. If getting a loan can prevent you from paying a higher interest rate, late fees, penalties and returned check fees, it might make sense to get a quick loan.
Sometimes, personal emergencies take precedence over costs. If a child is stranded out-of-town with a damaged vehicle, the cost of getting quick cash won’t be the overriding factor. If a business or personal opportunity develops–such as buying something valuable at a fraction of its cost or leveraging a time-sensitive business opportunity–a quick loan product could strengthen your financial profile.
Going into debt is an avoidable process, and you should always exercise restraint instead of accepting easy money loans. However, it’s just as important not to rush saying yes or no to easy online loans. The loans might be easy to get, but you need to assess your need for money, your ability to repay the loan and other alternative financing strategies that might provide a better deal. Find out more about getting loans easily online and why you shouldn’t borrow indiscriminately except in specific circumstances at the Personal Money Store.