Thank you for rejoining us for the second installment of our series, 5 Types of Loans That Consumers Should Avoid at All Costs. At some point in your life, you are likely to stumble upon hard times – financially speaking. It is at these points when consumers are the most vulnerable. Last week, you learned that there are many types of loans that you may take out in order to overcome financial hardships. While many may prove to be highly beneficial, there are others that have the capability of making an already dire situation even worse. We here at Somerville National Bank feel it is important that consumers know about these loans. Last week, we covered two of these – payday loans and cash advance loans. This week, we will continue with the final three.
1. Car Title Loans
The third type of loan that you should avoid when you are in need of extra cash are car title loans. Essentially, when you take out this type of loan, you are using your vehicle as collateral. The lender will typically provide you with a loan that equals up to 50% of the value of said vehicle. Unfortunately, the loan typically carries an interest rate of up to 300%. Additionally, the entire loan must be repaid within 30 days. If you fail to pay back the loan, the car will be repossessed.
2. Pawn Shop Loan
The next type of loan that you should avoid is the pawn shop loan. Basically, you take something of value to a pawn shop and you are provided with a set amount – as designated by the pawn shop. These loans typically need to be repaid anywhere between 30 days and 90 days. Unfortunately, the interest may be as high as 120%. Additionally, these types of loans may include extra fees such as storage, service, and so on and so forth. In most instances, the loan may become so expensive that you have to relinquish the merchandise that you have pawned for a very low amount. In fact, most pawn shops anticipate this happening. They may then resell your belongings for a higher price than they loaned you. By avoiding these types of loans, you avoid losing your prized possessions.
3. Overdraft Protection Loans
The next type of loan that you will want to avoid is not a standard loan. It is the overdraft protection that is offered on your checking account. In most instances, this amount is equal to $500 or less; however, if you use this type of loan, the bank will charge a fee each time. In most instances, the fee is about $35.00.