Obtaining a short term loan may seem like the only thing to do in an emergency situation. However, other options should be explored before opting to take out a high interest loan.
Payday Loans
Acquiring a payday loan can be a very simple process. There is typically no credit check involved, so the approval process can be very quick. Upon approval, money can be deposited directly into your bank account. However, this type of loan can be very expensive. If you take out a $200 payday loan, it may cost up to $260 to pay it back. That’s $60 in interest for a typical 14 day loan. For every extension, you’re going to pay another $60 in interest. Many people get caught in this cycle and find it hard to repay the loan.
Auto Title Loans
Auto loans are similar to payday loans except that the loan company uses your vehicle for collateral. Loans are based on the value of the car and interest fees can be anywhere around 300 percent annually. Consumers should be careful with these types of loans. If you can’t repay the loan, the lender will repossess your car and sell it in an attempt to recover their money.
Tax Refund Loans
This type of loan differs from payday and auto loans. The lender will offer to loan you the amount of your tax return for a fee. The loan is repaid to them once the refund is sent by the IRS. However, it may not be necessary to pay the high interest fee for this type of loan considering that you can receive your tax refund within 10 to 14 days from the time of filing.
Some people utilize these loans to pay off credit card debt. This can cause more debt as you may find it more difficult to pay back the entire loan plus the high interest. It may be beneficial to contact your credit card company prior to obtaining these loans to work out some type of payment arrangement. This can save you a lot of money in the long run.