For students, a loan can have a long-term impact on their finances, unless they are careful about it. There are many lenders out there willing to give loans to those with no or bad credit scores. This category often includes students as well. It can be quite tempting to go for these loans as the loan application process is pretty much hassle-free. However, trouble comes later, when it’s time to repay these loans. Most of these loans that should be avoided have higher APRs. These high-risk loans make it quite difficult to get back on stable footing. Some of these, such as private student loans, need nearly more than ten years to repay back. Private student loan Most student loans are federal loans. These have fixed rates and flexible repayment options. A student can avoid default with the help of various alternative repayment programs. Moreover, students can avail of several loan modifications to ease repayment. No such flexible repayments are possible with private student loans. Private loans are offered by credit unions, banks, and other such private lending institutions. These do not the flexible repayment options of federal student loans. Also, these have variable interest rates, which are often higher than the fixed rate of federal loans. Thus, borrowers have to keep on paying the loan for a really long time. This is why private student loans are best to avoid. Keep them as the last resort to fund education, in case no federal student loans are available. Auto title loan These loans may look helpful. After all, a car that is wholly owned by the borrower is the collateral. In the case of students, the car would be owned by their parents. It may seem like there is nothing to lose. Pay the loan back on time and get rid of the collateral. However, it is not quite easy. As the loan is secured with an auto title, many expect a lower interest rate. Also, these are short terms loans. So, it would be easy to repay them, right? Not so. Many experts put auto title loans under the category of loans to avoid. This is because these loans have very high APRs running to almost three digits. In many cases, lenders inflate the interest rates just to make it difficult for the borrower to repay the loan back. Borrowers usually get between 15 to 30 days to repay the loan. Otherwise, they may lose their car if the loan is not paid back on time. Miss one loan payment and the lender will seize the car. Cash advance loan Also known as credit card advance loans, these are another type of loans to avoid. Cash advance loan is taken against a credit card’s credit limit. It may seem pretty harmless in the beginning as many people tend to think they can pay back the loan on their monthly balance. It is quite easy—just head to the nearest ATM. Withdraw some cash with a credit card. This can be a quick and convenient loan. But it comes with a few repercussions. First is the credit card fee. Credit card providers charge about 3% to 5% interest in the advance amount. Thus, if someone is taking a cash advance of $700, they will have to pay about $21 to $35 as upfront fees. Second, there is no grace period with these loans. The interest will start accumulating immediately, as soon as the cash advance is withdrawn. Finally, the APR for such loans is generally more than the APR charged for the usual credit card purchases.
