Getting fast loans can quickly generate even faster problems for the unwary. Quick and easy cash loans, which can be a windfall for those who face an immediate need for cash, can also put borrowers into long-term debt, damage their credit scores and even make them susceptible to scams, hackers, thieves and predatory lending practices. For example, a CNN.com report warns against the dangers of auto title loans. At first, these easy-to-get loans seem ideal because borrowers get to keep their cars while the lenders wait for their money. However, the fees for these loans average between $80 and $115 for a $500 loan. These are fees that the law allows, but some companies even charge fees to repossess the vehicles used for collateral even though these charges are illegal.
The Quicker the Loan, the Quicker Complications Can Accumulate
Other dangerous loan products include those that only charge interest each month and balloon payments at the end of the agreed-upon financing period. Borrowers can pay hundreds or thousands of dollars to cover interest each month and still owe the full amount of the loan at the end of the finance period. A report posted at Magnifymoney.com recommends that borrowers find alternatives to fast loans and meanwhile build stronger credit profiles through these three strategies:
- Increasing Credit Scores
People who have no credit history or bad credit in their pasts can begin building their credit score by obtaining a secure credit card and making payments on time each month. It’s important not to use all the credit, and experts recommend using only 20 percent of available credit or less. Consumers can also use credit accounts at local retail stores in the same way to build their credit scores.
- Getting Loans from Credit Unions
Once credit scores reach 600, visit a local credit union to borrow money. These loans generally have more reasonable interest rates, and they can be used to consolidate other debts.
- Requesting Loans with Lower Interest Rates
When credit scores reach 700, borrowers can get the terms on credit cards and bank loans.
Fast loans can work in emergency situations when borrowers can afford to repay them and their interest within a short period of time. However, it’s always best to find loan alternatives and work on building a better credit profile. During the time it takes to build credit, most people learn that fast loans always carry a hefty price tag and often generate complications such as aggressive collection efforts, repossession of vehicles and impossible repayment requirements.
Fast Loans Could Land Some Borrowers in Jail
Texasobserver.org reports that payday lenders in the Texas cities of Houston, San Antonio and Amarillo have filed about at least 1,700 criminal complaints against customers who failed to repay their loans. Using the courts as collection agencies, lenders rarely get convictions on criminal charges that result in jail time, but some cases have. Texas law specifically prohibits filing larceny-by-check charges when checks are postdated for payday lending companies; however, there are narrowly defined cases where criminal charges can be filed. These situations occur when lenders can prove that the borrowers deliberately issued postdated checks that they knew were going to bounce–such as issuing a postdated check when unemployed or after a bank account has been closed.
Fast Loans Often Come with Traps
There are other dangers and traps for borrowers when they try to get quick loans. Investopedia.com warns that consumers should look for the following debt traps and unexpected complications:
- Penalties for early repayment of a given loan
- Hidden fees over the life of the loan
- Upfront processing or annual fees, which are frequently used by credit card companies
- Precomputed interest charges that don’t change when borrowers pay more on their loans than the minimum payments
- Unusual borrowing incentives such as offering cash back, payment holidays and other benefits
Some unscrupulous lenders or scam artists use loan request procedurees to get personal information about borrowers, which can be used for identity theft, credit card fraud and other crimes.
Making Wiser Borrowing Decisions
Most legitimate payday lenders offer fast loans to their customers without many complications. The interest rates tend to be higher, but the loans are supposed to be used as temporary measures to cover cash shortages. Responsible borrowers who realistically assess whether they can repay these loans from their next paychecks usually find these loans to be bargains given the high costs of late fees, penalties and bouncing checks, which could result in jail sentences. Unlike some predatory lenders, most payday loan companies don’t use overly aggressive or illegal collection tactics, but like all lenders, they will try to collect the money that’s owed to them by all legal means.
Some lenders–regardless of the type of loan–practice deceptive and aggressive policies, so consumers should always research the companies from which they borrow money. Consumers enjoy legal protection from heavy-handed collection efforts and unscrupulous lending policies. Find out more about fast loans, their risks and when it’s safe to use them at the PersonalMoneyStore.com.