Red Flags to Look Out for When Getting a Loan

On the radio and TV you probably hear and see a number of advertisements about payday and second-tier lenders who promise that they can get you an easy loan fast. There are also others who advertise that they can consolidate your existing loans, do repairs, and even improve your credit score. But is what they advertise actually true?

The short answer is no. Here’s what you should look out for before deciding to go with one.

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Higher Interest Rates

If a lender offers quick and easy approvals for almost anyone and that they don’t do credit checks, this should be a huge red flag. These kinds of loans are given out at high risk, meaning that you end up paying in higher interest rates and that the term of the loan will be longer, ending up costing you a ton of money in the long-run.

It just doesn’t make sense to take out an unsecured loan at 39.99% to pay off something like your credit card debt that has an interest rate of 19.99%.

Your Home as a Security on a Loan

There are companies that advertise that they can get you money from your home regardless of your credit history, age, or income. But using your home as a security in this way is a huge risk – what if you continue to have financial troubles and end up defaulting on the loan? That means that these people will have access to your home.

Keep in mind, a foreclosure will stay on your credit file for 6 years.

Poor Decision Making

These kinds of second-tier lenders take advantage of people in desperate situations by advertising “quick and easy” solutions. The result is that many people in debt fail to consider their options and just go for what’s advertised without thinking.

For instance if you took out a $300 payday loan for 14 days, it would cost you $45 to $75. In contrast, a credit card cash advance of $300 for the same 14 days would cost about $8. Considering the staggering difference in cost, if you need money fast in a short period of time, consider the latter and take a cash advance on your credit card or go into overdraft on your bank account. Just make sure you pay them off as fast as you can.

Bad for Your Credit Score

If you are looking to improve your credit score, then a high-interest loan from a second-tier lender isn’t for you. Applying for payday loans and the like will look bad on your file, and will most likely prevent you from being approved by major lenders like banks.

Get Help Today

Resorting to second-tier lenders and payday loans won’t get you anywhere. Instead, get debt help from a certified Credit Counsellor from a not-for-profit agency. They can give you the advice you need to get your life back on track and your finances in order.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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