For some people, taking out a loan may be necessary to fund an expensive purchase, or it may be used as a last resort during a financial crisis. If you’re thinking about taking out a loan, you may want to avoid the following types of loans, which can be risky.
Refund anticipation loans
If you’re waiting on a tax refund, you may have heard about an option to receive the money quicker through a refund anticipation loan. Despite federal regulations prohibiting refund anticipation loans because of their extremely high fees, they’re still around, but often under different names. If tax seasons rolls around and you know you need that money fast, file your return electronically and choose to receive your refund through direct deposit. If you currently don’t have a checking account, you can opt to have your money put onto a prepaid card. No matter what method you decide, filing electronically often seems to be the fastest way to receive a refund, with taxpayers usually receiving their refund money in two weeks or less.
Pawnshop loans are not conventional loans in the sense that your credit isn’t involved—your score is never taken into consideration and there is no application process. Pawnshop loans typically work like this: you go to a pawnshop to borrow cash, and in return, they hold onto an item of yours that is worth a similar amount of money, like jewelry. You get your item back once you pay back the money you borrowed. If you can’t pay back the money, your credit score isn’t affected, but you risk losing something that was valuable to you—whether sentimentally, financially, or both.
Car title loans
Your vehicle is the collateral that secures a car title loan. A lot of borrowers are unable to pay back the loan because of the extremely high interest rates, and as a result, they lose ownership of their car. Because these are such risky loans, it is highly recommended that consumers avoid them.
There are numerous drawbacks of payday loans (also commonly known as deferred deposit loans, check advance loans, post-dated check loans, and cash advance loans), which are offered by various lenders and financial institutions. These short-term loans usually have substantial fees and very high interest rates, and if a borrower can’t pay back the money by the due date, these fees increase even more.
Are you receiving structured settlement or annuity payments, but wish you could receive your money sooner? If you have bills and expenses to pay and have been thinking about taking out a loan, explore your other options. You may actually be able to sell all or a portion of your future payments, and receive that cash in the form of a lump sum. Why take out a risky loan if you don’t have to? These short-term solutions can prove to be never-ending nightmares, and may actually worsen your current financial situation. Break the debt cycle completely and consider the benefits of selling future payments for a lump sum of cash. After all, it’s your money—you’re just receiving it sooner. Contact Peachtree Financial Solutions today to learn more about your options and to receive a free quote.
Nothing above is meant to provide financial, legal, or tax advice. You should meet with appropriate professionals for such services