5 Traps to Avoid When Seeking Fast Loans
A financial emergency can force you to make a quick borrowing decision. While it’s important to get the cash you need, make sure that the loan won’t wreck your financial future. There are a few things to watch out for anytime you borrow money. Five traps to avoid when seeking fast loans range from dodging loans that come with insurance to opting out of a loan that features a pre-payment penalty.
When Shopping for Fast Loans, Avoid Financial Traps
Along with avoiding a loan that requires insurance or has pre-payment penalties, it’s also important to look out for lenders who are offering a loan with pre-calculated interest or an origination fee. You should also avoid signing up for a loan through a lender who isn’t licensed. Even if your timeline for acquiring additional funds is incredibly tight, be sure to research a loan’s terms as thoroughly as possible.
Avoid Loans that Require Insurance Protection
It’s tough to turn down insurance because everyone wants to protect their families from unexpected events. Insurance is a good way to provide this protection. But, when the lenders of fast loans online attempt to sell you insurance for the money that you want to borrow, it is a financial product to avoid. According to Magnify Money1, this kind of insurance might sound cheap, but their value is typically bad. A regular life insurance policy that covers all of your expenses is a much better deal.
Steer Clear of Fast Loans that Have Pre-Payment Penalties
Fast loans shouldn’t come with pre-payment penalties. This is a feature that financial institutions are starting to eliminate, but there are loans out there that continue to come with one. Because pre-payment penalties still exist, it’s important to ask if your loan has one.
Some lenders may offer a lower interest rate on loan products that have a pre-payment penalty. If this is the case, then you may want to consider the loan. If you do, make sure that you’ll still come out ahead if you pay the loan balance early. Other lenders won’t approve you for their loan unless you accept it with the pre-payment penalty. In this case, you’ll have to weigh whether getting the cash fast is worth the extra cost.
Don’t Take Out Loans that Come with an Origination Fee
The lenders of fast loans with bad credit often require an origination fee, and while it would be nice to avoid this extra charge, you may not be able to. You can make sure that you are getting the best possible deal by comparing the annual percentage rates, or APRs, of different loans instead of considering just the interest rate. The APR will include a loan’s origination fee.
The Balance2 reports that you can minimize these loan fees by negotiating. Your request may be declined, but it’s worth a try. If you’re unable to negotiate a lower origination fee, then consider paying it up-front. This step ensures that you know exactly how much you’re spending.
Run Away from Lenders Who Don’t Have a License
When seeking fast loans, make sure that each lender you’re considering borrowing money through is licensed. Many states require lenders to become licensed before they can lend money to consumers. The Washington State Department of Financial Institutions3 regulates and oversees the payday lending industry in the state while legislators in California do so there.
To see whether a lender has a license to do business in your state, check with the state regulator or attorney general. Not every state permits short-term lending, and if you enter into a loan with a lender who isn’t licensed, then the lender may not have the legal right to request repayment. Even internet lenders must be licensed to do business in states that require this regulatory action.
Cancel a Loan that Includes the Interest Amount
Some lenders of fast loans pre-calculate the interest to charge more. The process is complex, and lenders who use it are making sure that you pay them more interest in the first few months or years of your loan. If you find a way to pay this kind of loan off early, then you will wind up paying a higher rate of interest than what the lender told you.
If you agree to a fast cash loan that has a three-year payoff term and take the full three years to pay for it, then you’ll pay the same amount as you would a regular loan. But, if you pay it back before the three-year term ends, then you’ll pay a higher rate of interest.
Use Caution When Seeking a Loan
Fast loans with bad credit are useful financial products but use caution anytime you’re seeking a loan. Take as much time as you can when shopping for a loan, being sure to consider interest rates, payoff terms and fees. To learn more about fast loans online, visit the Personal Money Store.