During these tough economic times, consumers will often resort to desperate measures for solving their cash needs. Detailed below are some of the most common, but predatory means for solving short-term financial needs. They are broken down for you so that you can hopefully see that the long-term negative of each will outweigh any short-term financial gains.
In times of financial stress, it may seem worthwhile to get the money you need at any cost. However, the cost involved with these types of fast cash loans and the easy money they provide can equate to you becoming financially addicted to them…having to use one payday loan to pay off another.
In order to receive a payday loan, you are required to write a post-dated check to the lender for the loan amount plus all fees. The money you request will be electronically deposited into your account with you promising to pay back that amount plus the pre-determined fees. Terms associated with payday loans are typically one or two weeks…at which time your lender is going to cash the post-dated check you provided.
Payday loan fees are usually a specific dollar amount for every hundred dollars that you borrow. For instance, suppose you are charged $15 for every $100 that you borrow. If you necessitate $300, your post-dated check will be for the amount of $345 ($300 + ($15 x 3)). $45 may seem very reasonable when you critically need $300. However, $45 equates to an APR (Annual Percentage Rate) of 390%! No one in their right mind would look to utilize a loan with a triple digit interest rate associated with it. And if you end up not being able to pay your loan off on time, your loan will roll over, resulting in more interest costs and fees.
Two things can be accomplished at a pawn shop; you can borrow money by putting up some sort personal property as collateral or you can sell your merchandise out-and-out. Pawn shops are known for great bargains…but not for sellers, only the shoppers. Usually, an individual that is pawning an item will receive cash (likely not anywhere close to the actual value of the item) which in turn they
agree to pay back, plus interest. The merchandise is returned back to the owner if the borrowed amount is paid back, in full and on time.
In the event that the loan is not repaid, the consumer can request to renew the loan, or else the item
is surrendered. So…what is the issue? Similar to payday loans, APRs associated with pawn shop loans are almost always triple digit. In addition, it has been reported by National Pawnbrokers Association that only 60% of pawners wind up retrieving their merchandise, and as a result have sold their personal belonging/s for pennies on the dollar. It is doubtful that anyone would agree to give their property away for pretty much nothing.
Who doesn’t want nice furniture and/or the newest electronics? But, when you go down to the furniture or electronic store, you will quickly learn that new stuff is expensive and likely way out of your budget. But, you remember those ads you see on TV for stores like RentACenter where consumers have the ability to buy items by making small weekly or monthly payments until the merchandise is
completely paid off. Seems like an amazing deal? Its not! Once again, the issue is in the fees and interest.
For example, suppose you purchased a new table for $200 and agreed to make payments of $15 (you can afford that!) for a duration of 78 weeks (about a year and a half), you will wind up paying over $1100 for that $200 table! That equates to an APR of about 388%! In addition, the initial costs at rent-to-own establishments are notoriously higher than prices at normal stores.
The Bottom Line
After reading this article, you may be scratching your head asking yourself why in the world would anyone agree to the terms imposed by pawn shops, payday loan providers and rent-to-own companies? The reason being is that people with bad credit often do not qualify for traditional unsecured personal loans from credit unions or banks and would not be able to achieve approval for in-store credit lines.
Nevertheless, people need to comprehend that although there are costs involved with getting credit, when that cost becomes ridiculously excessive, the consumer would be better off taking other alternatives into consideration or doing without altogether.