Fast Loans Can Be Risky for Borrowers

[Jul 9, 2010.]

 

You need to get your hands on some cash quickly, and don't have many options. You've heard how many people have gotten fast loans at payday lenders, pawn shops, or title lenders and are seriously considering going that route. Before you plunge headfirst into the world of quick loans, consider the following reasons these loans are risky.

Setting Yourself Up for a Cycle of Debt

One of the biggest drawbacks to getting a payday loan is that the chances are high you may be sucked into a cycle of constantly borrowing money this way. Fast loans at payday lenders don't require credit checks, but you must have a job. That's because this type of loan is made against your next paycheck. Once payday arrives, you either pay off the loan balance or are forced to accrue very high rates of interest when you roll the loan over. Payday lenders are notorious for having interest rates well into the triple digits, although legislators are working to either cap interest rates or eliminate the loans altogether.

Slowing a Leak Instead of Fixing It

While a fast loan can help you get through a financial emergency, in many cases you are simply creating a temporary fix for your money problems. Relying on a personal loan can only take you so far if you have problems with overspending, abuse credit cards, and have no financial skills. Even if you decide to borrow money now, it is crucial that you start working on a plan for your finances so you won't end up on a first name basis with your local payday lender.

Get Help Instead of a Loan

So what can you do to improve your financial situation so you won't be tempted to turn to fast loans from payday lenders? Get with a reputable credit counselor if you can't figure out how to get out of debt on your own. There are free and low-cost debt counselors all over the country so see what's available in your community. Putting together a budget, knocking out debt, and putting together a savings plan are three things a credit counselor can help you accomplish.

Also, look for a debt counselor or support group that can help you sort through some of the reasons you haven't been responsible with handling money. In many cases there is more behind poor financial habits than just not knowing how to set up a budget. Relying on quick loans from payday lenders can allow you to stay in denial about the real reasons you haven't been successful with managing money.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.