5 Personal Loan Dangers (And How To Avoid Them!)
A personal loan is like a trail map: Use it correctly and you can reach your financial destination. Use it incorrectly, and you can fall further into debt.
The summer is a fantastic time of year to go for a hike. After all, who doesn’t love the smell of fresh pine needles, mountain flowers and… is that a skunk? Any experienced hiker will tell you that going for a long hike without knowing what to expect can be pretty dangerous.
Just like hiking, taking out a personal loan requires knowing the hazards. Learn how to avoid these five personal loan dangers before selecting a lender.
1. Taking out a loan for the wrong reason
If you’re considering a personal loan, be sure to explore all of your options before borrowing. Maybe you have a friend or family member that could lend you money. Perhaps your employer wouldn’t mind advancing you some cash. Could you pick up some extra hours or a part-time job to get the money you need?
If you only need a small amount of money, a personal loan probably isn’t your best option. However, if you’re dealing with a high-cost emergency high-cost emergency, like a car repair or medical bill, then you may very well need it.
Before you borrow, ask yourself if the money you’re requesting is for a need or a want. Paying for a sweet new mountain bike? That’s a want. You don’t actually need it. But paying the ER bill for the broken leg you suffered while riding your sweet new mountain bike? That’s most definitely a need.
(And if you are dealing with a serious high-cost emergency—and we hope you’re not—check out our blog post on how to handle major financial emergencies.)
2. Taking the first loan you’re offered
It’s 2016! The American consumer has more power now than ever before. In the past, we may have believed what we were told on television, in the newspaper, and on the radio. But now, thanks to the internet, it’s the people who have the power.
Check out the The OppLoans Guide to Safe Personal Loans for tips on what to look for in both a loan and a lender. And remember: if you don’t like what one lender is offering, then you should look for a better offer! And don’t just check out a company’s loans, look at their ratings and customer reviews, too. Do their customers like working with them? Are they reasonable, friendly, responsible? Are they accredited by the Better Business Bureau? Read their customer reviews on sites like Google and Lending Tree.
If you were buying camping gear for a multi-day hike, you wouldn’t just buy the first tent you saw. The same goes for a personal loan. Taking some time to shop around for the best possible loan could end up saving you a lot of time, money, and hassle.
3. Skipping the fine print
Some lenders may try to pressure you into signing in a hurry. They may want you to miss certain details like additional fees and charges. Make sure that you read the entire contract before you sign it. Plus, the very fact that a lender tried to pressure you is a huge red flag. It’s the rattle that lets you know there’s a snake.
If you don’t understand something about your loan, ask.
The main aspects you’ll want to know before agreeing to the loan are 1)The APR, 2) The length of the term, 3) The amount of your payments, and 4) Whether the interest rate is fixed or variable. A fixed rate means the interest stays the same throughout the life of the loan, while a variable interest rate can go up and down.
4. Accepting More Than You Need
Another tactic that some lenders will employ is offering you more money than what you need. This can lead to higher monthly payments and more money spent in interest and fees. Find out exactly how much you need, and don’t be talked into borrowing more (read more in How to Stay Safe With a Bad Credit Loan).
You’ll also want to know how much you can afford in monthly payments. It’s like a hiker knowing how much weight they can carry in their backpack: If your monthly payments are more than you can handle, you won’t make it to the end of the trail. The best way to find out how much you can afford is to construct a monthly budget before agreeing to a new loan. If you need help figuring out your budget, check out this awesome budget calculator!
5. Payday, Title, Pawn Shop
These three types of loans are widely accepted as some of the riskiest and most expensive options out there. They are often labelled as “predatory loans.” And if there’s one thing you want to do when hiking, it’s avoid predators.
All three of these loans tend to come with extremely high interest rates and very unreasonable terms. With a payday loan, you can almost guarantee you’ll be paying an obscene amount in interest and additional fees. And title loans? They require you to use your vehicle as collateral to obtain a high-cost, short-term loan. Many customers end up paying thousands of dollars in interest fees just to avoid losing their car or truck. Lastly, pawn shop loans are usually very small but come with high interest, short terms, and additional fees.
It’s a good idea to avoid these types of lenders. They won’t ever leave you whistling “Happy Trails.” Besides, there are plenty of other safe and affordable options out there. OppLoans for instance, offers borrowers safer personal installment loans with longer terms, and interest rates that are up to 125% less than payday loans. If you’re in need of some quick cash, apply today!