While all debt represents a risk, there are some forms of debt are almost guaranteed to create huge financial problems. These debt types come with high interest rates, unconscionable fees, and risks to your property you just don’t want to get into.
More than that, they’re all aimed at, and marketed to, people who are already in financial trouble.
400% interest. A demand for a post-dated check. And an industry that’s notorious for being absolutely ruthless.
And if you use the Internet to take one out, you risk exposing your data to all sorts of unsavory types.
Worse, you could find yourself rolling these loans over again and again, until you end up paying four or five times what you originally owed. They’re structured in a way that makes it harder to see it clearly, but that’s usually what happens.
Car Title Loans
Car title loans are arguably even worse than payday loans. They get you involved with a predatory lender and put your vehicle up as collateral.
It goes without saying that losing your car can cause a snowball effect that ripples into every area of your life. If you need your car to get to work or school and can’t rely on public transportation, this type of loan is likely to be disastrous.
These loans typically have an APR of around 300% to 400%, just like payday loans.
See also: Can I Buy a Car After Bankruptcy?
It seems like a good deal: you take out a line of credit, and you don’t bounce checks. You pay the bank back whatever you owe.
Except for one little problem. The bank is still charging fees exactly as if you didn’t have the protection at all. $35 for every transaction. Only now, you’ve taken out a line of credit that earns interest versus simply needing to bring your balance current.
And because it lets you swipe your debit card when you have no money in the bank, you can end up accruing huge fees on a bunch of small transactions, all without being aware that you’re paying $35 for that $2 soft drink.
Pawn Shop Loans
They’re safer than payday loans, but not by much, and they carry the risk of losing whatever personal property you bring to the pawn shop.
High interest rates and finance charges are just the beginning. Some pawn shops look for even more ways to increase what you owe them, such as charging storage fees.
And if you give up and say, “Whatever, just sell my TV?” They’ll happily do so, but they won’t pay you back if your TV sells for a lot more than you owed.
Home Equity Loans
Home equity loans get marketed to two types of people. First, people who desperately need to make a home repair and can’t afford to. Second, people who have a lot of debt and who think consolidating it all into one payment seems like a grand idea.
What do they both have in common? Two types of people who are in some sort of financial distress.
What happens when you take out a home equity loan? You take out a second mortgage, giving another lender an interest in your property and the ability to foreclose if you don’t pay.
And the terms range from 5 years to 20 years. That’s a lot of time for things to go wrong. A lot of time for a single stroke of bad luck to ensure you can’t pay this debt either. Even if nothing else happens, many home equity loans are variable rate loans, which means after a certain period of time your payment is going to shoot up, making life even harder.
Have you considered any of these loan types, or used them?
If so, it might be time to take a step back and consider other options.
Most people wait too long to file bankruptcy, and even considering any of these types of loans is a good sign you need to do so.
Call us before locking yourself into another loan you’ll regret. We’ll be happy to discuss your financial situation, show you your options, and show you how we can relieve your financial pressures in a lasting, legal way.