Why Quick Loans Aren’t Necessarily the Best Option
Quick loans are generally short-term loans for relatively small amounts. These loans are often paid back on the borrower’s next payday, but sometimes, lenders off them as installment loans that can be paid back over a longer period. Regardless of the exact terms, most quick loans charge higher rates of interest for the convenience of getting your money quickly with a simpler application and less red tape.
Although these loans can be easy to get and give families an emergency lifeline when they need cash in a hurry, they aren’t always the best option for your needs. If you have a longer term need for financing–and not just a temporary cash emergency–these loans aren’t going to help and could aggravate your problems. The higher rates of interest and quicker repayment times mean that you’ll be facing the same cash pressures in just a few weeks, but now you’ll also have to cover the interest charges and administrative costs of the loan. That’s how good people get trapped in debt cycles. You might be tempted to get another loan to cover your expenses, and the charges and interest begin to snowball out of control.
It’s Important to Exhaust Other Financing Options Before Turning to Quick Loans
An article at Bankrate.com suggests that borrowers often turn to quick loans after waging a long-standing battle to control their expenses. Unfortunately, taking on more debt isn’t the answer because that just increases those obligations. The article suggests investigating some of the following common alternatives instead of getting a “quick” loan:
- Borrow money from a credit union, alternative lender or neighborhood bank.
- Use a credit card to pay for what you need, or get a cash advance at a lower interest rate than those offered by many online lenders.
- Shop around for the best interest rates and repayment terms for your needs.
- Contact any creditors to see if you can get more time to make payments on existing debt or restructure your current loan obligations.
- Borrow from a family member, friend or your employer.
- Put off buying things for which you can’t pay cash.
- Find ways to earn extra money such as finding a part-time job, working overtime, doing odd jobs, working online, etc.
Investopedia.com recommends first exploring any options that don’t require borrowing when you need an infusion of cash. However, any alternative with a lower interest rate is better than a quick, high-interest loan. Short-term loans can often seem to be a bargain because the relatively short financing period generates only small-dollar amounts of total interest even though the rates are high. The real problem arises when borrowers roll over their loans or get multiple loans to cover their debts. Investopedia recommends considering the following additional alternatives:
- Life Insurance Loan
Whole life insurance policies often allow policyholders to borrow against a policy’s benefit.
- Learning About Finances
Online resources offer budgeting assistance, ways to reduce expenses, financial education and ways to rebuild your credit score so that you could qualify for a loan with a lower interest rate.
- Retirement Accounts
If you have a retirement account at work, you can make a partial withdrawal once each year without paying a penalty if you replace the funds within 60 days. That’s a lot better than paying interest.
- Emergency Neighborhood Assistance
Many social service agencies, charities, churches and community organizations offer assistance in paying utility bills, provide free food, offer rent assistance and can help you make a car payment.
- Personal Installment Loans
You can often get a low-interest personal installment loan from a bank, credit union or other type of financial institution. These loan products allow borrowers to repay the loan in 90 days or more.
- Selling or Pawning Items
If you own something of value that you don’t need immediately, you can sell it online or pawn it until you can repay the money.
- Peer-to-Peer Lending
Peer-to-peer and marketplace lending platforms offer loans that are financed by everyday investors. These loans are often easier to get if you can tell a convincing story, and the interest rates are generally lower than other loans according to an article at Forbes.com.
- Secured Loans
If you own property–such as a boat, car, business or home–you can use the equity in that property as collateral for a secured loan. These loans have lower interest rates than unsecured loans, but if you can’t repay the obligation, you run the risk of losing the secured property.
Getting Quick Loans Online Serves Best as a Last Resort
Getting quick loans online can make sense in certain circumstances. If the following scenarios apply to you, then getting quick loans online could be the best option for your needs:
- You only need a small amount of cash.
- You can afford to repay your loan easily according to the terms of the agreement.
- You’re not expecting any major expenses during the loan period.
- You don’t have any other workable financing options, and the costs of not getting the money exceed the interest and administrative charges you’ll need to pay to settle any quick loans online.
Responsible Use of Online Loans
Regardless of the loan or financing strategy, it’s always important to manage your obligations and money responsibly. Unfortunately, access to cash often tempts borrowers to spend money on frivolous or luxury items. Only direct savings from work or extra income-generating activities should be used to finance luxury goods or impulse items. You should never borrow more money than you need, and always make sure that you can repay the loan without cutting into essential living expenses.
Getting Small Business Loans
There are sound financial best practices for getting a personal loan, but business loans are a bit different. Entrepreneurs and everyday people are increasingly operating small businesses–often out of their homes. Getting a business loan from the bank can be even more challenging than landing a personal loan. Quick business loans can generate substantial business opportunities, so traditional warnings might not always apply. Time-sensitive opportunities can generate big returns, so interest rates aren’t always the most critical concern.
An article posted at Businessnewsdaily.com recommends that borrowers who need money for their businesses should also investigate alternatives to high-interest loans. Alternatives include cash advances against projected credit card income, invoice factoring, loans from the Small Business Administration and commercial mortgage loans.
Responsible borrowing is the responsibility of everyone, but many unscrupulous and predatory lenders use people’s financial troubles to trap them in escalating debt. That’s why it’s so important for you to consider carefully whether you can afford to repay a given loan and whether there are better financing alternatives available.