Financial scammers are always on the lookout to target people that have been denied loans from legitimate financial institutions. Some loans, although helpful, need to be avoided by customers as they could lead to additional problems. When someone is considering taking up a loan, it is important for them to know what types of loans need to be avoided. They should identify the short repayment times, the destructive consequences of not being able to repay the loan, and the peril of a high rate of interest. Some of the loans that people need to avoid taking are:
- Car title loans When a person uses their vehicle as collateral, they get a loan amount that is equal to half of the value of the car. The rate of interest on the car title loan is a whopping 25% every month. Such loans need to be repaid in full within a period of 30 days. In order to pay off the rate of interest and the fees, there are occasions in which the loan can be rolled into another month for a greater cash outlay. Such loans are popular among members from the military. The rate of interest is fixed at 36% with a repayment term of 181 days or even less than that. This type of loan needs to be avoided as it causes you to lose your car. Additionally, the government officials have imposed a limit on this type of loan as their repayments terms are highly unrealistic.
- Private student loans Most of the student loans are designed by the Federal government. However, some banks, lending institutions, and credit unions are responsible for providing students with private students loans. Most of these loans have an interest rate that is variable, which are mostly on the higher side. These loans need credit checks. They do not provide the borrower with flexible repayment options as compared to government loans. Which is why private student loans should be avoided and regarded only as a person’s last borrowing option.
- Pawn shop loans If a person wants to borrow money immediately, they tend to keep something valuable, such as jewelry, as collateral at a pawn shop. The pawn shop will provide the borrower an amount that is equal to a small fraction of the item pawned. The loan needs to be repaid within a time period of 30-90 days along with the interest. The other problems that are associated with this loan type are the add-on fees charged for a lost ticket, storage, and the service which have the potential to amount to more than what the borrower might have paid as the interest charges. Additionally, failure to pay the amount in full could lead to loss of the valuable item.
