The Price of Getting a Secured Personal Loan

[Oct 23, 2009.]

 

Many people turn to unsecured personal loans when they are facing a tough time financially. But not everyone is able to get unsecured personal loans from lenders. Some may find themselves turning to secured personal loans from places like title loan companies or pawn shops. But using these types of lenders can result in a loss of property, hefty fees, and a vicious cycle of debt, so they should only be used as a last resort.

Putting Your Ride at Risk

If someone borrows money from a title loan company, they offer their auto as collateral. The loan company holds onto the car title until the personal loan is paid off. The amount a borrower can get from a title loan company depends upon the age and condition of the vehicle.

In many cases the loan must be paid back in 30 days and is subject to interest rates of 25% or more, which results in an annual percentage rate (APR) in the triple digits, according to Finweb.com. If the money isn't paid back, the title loan company takes possession of the car and sells it to recover the amount of the loan.

Loans from Pawn Shops

It's pretty convenient to take electronics, jewelry, appliances, etc. to a pawn shop to get a fast loan. But no one should expect to receive a ton of money by pawning items. Many items appraise way below the market value a person could get by selling them on their own. To get a fast loan from a pawn shop, expect to pay a hefty fee of about $20 to $40 per $100 borrowed, according to Finweb.com. If the loan isn't paid back, the pawn broker is free to sell the borrower's stuff.

Quick Loans Against Paychecks

Some folks turn to payday lenders, also known as cash advance stores, to obtain quick loans. But like the other dubious forms of borrowing, consumers end up paying high rates of interest for payday loans. Cash advance loans basically allow people to borrow money against their paychecks. These quick loans are due on payday, and if they are not paid in full, they roll over until the next pay period and continue to accumulate interest.

The APR on these loans can run up to 500% or more if someone gets caught in the cycle of rolling over loans repeatedly. These quick loans also are available from online cash advance lenders. However, payday loans are illegal in about 15 states and the District of Columbia, according to Americans for Fairness in Lending, a consumer advocacy organization.

 

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.