How to Borrow Money Online without Getting Fleeced
A recent report at Mymoneyblog.com examined some of the issues that make trying to borrow money online risky for borrowers. The primary risk seems to come from consumers who misuse online loans or make bad borrowing decisions. Many online loans are of the payday-type–short-term loans that are meant to be repaid from the borrower’s next paycheck. Used as intended, these loans can prevent more expensive penalties when you can’t afford to pay a bill and risk incurring penalties, fees, reconnection charges and returned check fees.
Unless you borrow money online with collateral or find a low-interest installment loan, quick and easy loans online usually carry high interest rates and commensurate loan fees based on short-term borrowing and lump-sum repayment of the loan, interest and associated fees. If you have bad credit, loan offers often carry burdensome fees and interest rates.
Responsible lenders try to educate their customers about the risks and high interest of borrowing online, but some predatory lenders use consumer ignorance to their advantage by targeting people with financial problems and encouraging them to take out multiple loans that they can’t afford.
Short-term loans are intended as stop-gap measures for people who are temporarily in a financial bind. Trying to get an online loan for long-term financial problems is about as effective as treating a broken leg with a Bandaid. Full repayment is due in just a couple of weeks–along with the interest charges and fees–so those with long-term financial problems will just make their situations worse. If you’re not careful when you borrow money, you could get trapped in a cycle of debt that’s hard to escape.
How to Borrow Money Responsibly
The key to learn how to borrow money responsibly is to develop wiser spending habits. Borrowing money to shop online, repay existing loans and buy luxury items are the underlying spending habits that trap people in debt. Best practices for reducing your spending, according to a report posted at Thesimpledollar.com, include these money-saving tips:
- Sell a vehicle, and investigate using public transportation some or all of the time.
- Refinance your home or car to generate cash equity to use for paying bills and living expenses.
- Use balance transfers to move debt from high-interest credit cards to those that offer low interest or no interest during the introductory period.
- Upgrade your home to take advantage of smart energy savings such as using LED lighting, programmable thermostats, timers, insulation and smart power strips.
- Eliminate unnecessary services such as landline phones, expensive entertainment options, club and gym memberships and newspaper and magazine subscriptions for periodicals that can be read online or at your local library.
- Buy foods in bulk, use coupons to save money, pack lunches and reduce the times that you and your family dine in restaurants or order takeout food.
- Consider switching your insurance coverage to term life insurance that builds cash equity that you can access or borrow against.
How to Borrow Money with Bad Credit Without Getting Trapped in Debt
Check out all the terms of loan and credit offers online before you try to borrow money with bad credit loans. The higher interest rates and repayment terms could be worse than your current financial problems, so it makes no sense to put off things for a few weeks. Contact your current creditors, and try to restructure your loans or arrange new repayment plans. If your income doesn’t cover your bills, try to reduce your spending or add more income by working longer hours, getting a part-time job or selling things you don’t need.
If you own property or items of value, it’s possible to use them as collateral for a low-interest installment loan. You can also obtain a low-interest second mortgage to access the equity in your home. These loans–which can often generate substantial amounts of cash–can also be used to consolidate debts and pay down high-interest obligations. If you have someone who’s willing to take a risk, ask her or him to co-sign your loan obligation to land a lower interest loan than what you could get on your own credit record.
Getting cash from the first lender that’s willing to approve a loan is never the best strategy. The lending industry is about risk that’s proportionate to how much income the lender stands to earn. If someone offers a deal that seems too good to be true, then it probably is. The lender reduces the risk of approving bad credit loans by charging higher-than-normal interest rates and hidden fees or practicing predatory lending practices such as collecting debts aggressively, automatically deducting payments from your bank account and presenting debts multiple times when payments don’t post immediately.
When shopping for a loan, consider the following average interest rates compiled in a report at Nerdwallet.com:
- Credit union loans have average interest rates of 9.25 percent, and getting approved for these loans takes one week or longer.
- Online personal loans from traditional lenders and community-based organizations have interest rates that average 15 percent for quick loans that take one to five days to approve.
- Loans from your employer often carry no interest, and many of these can be arranged in minutes after you get a meeting with the boss.
- Credit card cash advance loans have interest rates that average 25 percent, and loans are available instantly by accessing an ATM.
- No-credit check loans carry average interest rates of 200 percent or more, but you can often get an instant decision.
- Payday loans, which must be repaid from your next paycheck, carry interest rates as high as 400 percent. You can get a fast decision, but these loans are only recommended for dealing with cash emergencies.
Fast decisions are becoming common among all lenders. It makes little sense to pay astronomical interest rates if you could get a low-interest loan by waiting a day or two.
Researching Potential Online Lenders Through Professional Associations
One effective way to research online lenders to borrow money with bad credit is to check with lending associations to find out whether specific lenders have received complaints or government enforcement actions. Your local Better Business Bureau (or the Bureau locations where a lender does busi9ness) is a good place to find out about consumer complaints against lenders.
You can check out traditional online lenders at Onlinelendersalliance.org. This professional organization maintains a strict code of professional conduct for its members. If an online lender is a member of OLA, you can be sure that the company complies with federal regulations and strives to provide great online experiences for its customers. The Community Financial Services Association of America, or CFSA, represents the interest of responsible short-term lenders such as payday loan companies, online installment loan lenders and other short-term lenders. You can contact the CFSA at Cfsaa.com.
The only way to guarantee you won’t be fleeced when you borrow money online is to shop carefully, compare loan products, find out what the exact terms of the loan are and determine your ability to repay the loan comfortably. It’s also critical to decide if you can do without a loan, which is always the best option. Find out more about how to choose an online loan without getting cheated or targeted for predatory lending at the Personal Money Store.