How to Finance a Medical Emergency

An OppLoans E-Book

Payday


Payday loans

Here’s how payday loans work: a borrower brings a pay stub to a lender to prove they have a job. In exchange for a loan, they write a postdated check for the loan amount (plus fees!) and give it to the lender. If they don’t repay the loan on time, the lender cashes the check.

However, it’s common for payday borrowers to struggle to pay back the original loan on time. In fact, more than 80 percent of payday loans are “rolled over,” 20 meaning borrowers take out a new payday loan to cover the cost of the last one. 21 This vicious cycle goes on and on, because payday lenders count on these repeat customers. In fact, borrowers who take out 11 or more loans a year account for about 75 percent of the fees charged by payday lenders. 22

According to a study by the Consumer Financial Protection Bureau, payday borrowers take out a median of 10 loans per year. Much of the time, the fees on these loans far outweigh the original amount of the loan (borrowers pay a median of $458 in fees). 23 In contrast to credit cards, which typically have APRs of 12 to 20 percent, payday loans often have APRs of 400 percent, 24 and in some states they’re even higher. In Utah, the typical APR for a payday loan of $300 is 658 percent. In Texas, it’s a whopping 662 percent. 25

Cash advances

Cash advances are very similar to payday loans — often the terms are used interchangeably. Most storefronts or online lenders that offer payday loans also offer cash advances, and these short-term loans generally carry the same sky-high fees and APRs. You can also get cash advances through your credit card issuer, but the rates and fees will probably be higher than you would pay on a regular purchase. 26

Tax refund anticipation loans (RALs).

Tax refund anticipation loans, or RALs, prey on impatience. They provide you the amount of your federal or state tax refund immediately — no waiting for the IRS required. Of course, there’s a catch: high fees and high interest rates. A typical RAL could have an APR of 108 percent, according to Georgetown University’s Credit Research Center. 27 In most cases, you’re better off sitting tight for your refund check or direct deposit to arrive, as the fees on these loans could cancel out your refund entirely.

OppLoans - Auto Loans

Auto title loans

Like payday loans, auto title loans offer high fees and APRs in exchange for a quick hit of cash. Most people who take out car title loans take out a median of $845, according to the Center for Responsible Lending. 28 And like payday loans, these can get you into a world of financial trouble.

To receive a car title loan, a borrower uses a car they own outright as collateral. Essentially, collateral is a lender’s backup plan. If the borrower doesn’t pay back their loan on time, the lender can seize the collateral — in this case, the borrower’s car – which may be worth far more than the original loan.

About one in five auto title borrowers have their car seized, and although these loans are intended to be short term, they almost never are. Four out of five title loans are renewed, sparking the same out-of-control debt cycle so often seen with payday loans. 29  The average car-title borrower is in debt for six months, and 16 percent remain in debt for a year. 30

NoCredCheck

No-credit-check loans.

No-credit-check loans are just what they sound like: loans issued without the lender checking your credit score or credit report.

Like payday lenders, lenders offering no-credit-check loans don’t consider a borrower’s ability to repay the loan. They may have bloated APRs and unnecessary fees. As a result, taking out a no-credit-check loan can start borrowers on that same vicious cycle of debt all over again — loans on loans on loans. Another worst-case scenario? The borrower simply defaults: one popular payday installment lender in California reported that about in one three of their loans in 2014 could not be repaid. 31

< previousnext >