Bubba always said, “don’t pay and I bust your knuckles” that is what a bad loan looks like, and there are many other dumb ways to borrow money and lets face it when your in a corner, and desperate, you will do or sign just about anything to get you by. When you gamble for your money, you usually loose to the house. So don’t loose the house. Learn the ways that you should not borrow money and you will be on your way to financial freedom. Here are five of the worst in no particular order.
- Car Dealer Loans
- Payday Advances
- Pawn Shops
- Credit Card Cash Advances
Car Dealer Loans
These are the car loans on the roadside car lots that are offered by those dealers who loan their own, or finance their own money to high risk borrowers. Most of these are older cars with questionable histories and high miles, and they prey on the buyer in a pinch and those who have bad credit. They require you to pay them at the dealer, sometimes every payday, and if you don’t they will repossess the car, or turn it off remotely. Some of these dealers install remote car disable controers and use global positioning systems to find you car and turn them off until you pay.
Payday Advance Loans
By far the worst and highest interest loans out there, save illegal loans from bad people, are payday advance loans. They are low amount high interest short term loans, with interest as high a 400% annual interest. Making credit card interest look like a great investment. Check the chart here at ncls.org for your states statutes on pay day lending. In a typical loan you can only borrow less than $500 and must be paid on your next payday, or the interest compounds and the loan renews. Not only that, but often you must give them access to your bank account and allow them to go in there and get their money plus interest.
If you are willing to part with your stuff permanently, sell it on an auction site or craigslist, don’t pawn it. At high interest rates and hidden costs such as storage fees, handling fees and restock fees make pawn shops a really bad place to get a loan. Most states have laws on how high the interest rate can be, usually 25%, but check your state before you decide to go this route because it is dumb way to borrow money. If you do decide to use the pawn shop just sell your belongings outright, and don’t waste your time with the short term loans, because the interest will kill you and the amount you have to pay to get your prized possessions back is greater than what it is worth.
Credit Card Cash Advances
What a dumb way to get cash according to creditcards.com rate range from 10% to 25% with at least a $10 minimum charge at the outset and interest begins immediately, not on the next cycle. If you must use this, use it in only extreme emergencies and pay it off in the next month. Most cards have two separate calculations for cash advance and regular purchases. The problem now is that it is so easy to get cash from your card, just plop it into an ATM and you are good to go, decades ago, that was not possible and you had to find a bank and jump through some hoops to get the cash. The easier it is now, the more it will cost you, don’t be fooled by the ease of use.
Here are some bonus dumb ways to borrow money car title loans, where you put up your paid off car, or almost paid off car for some short term cash. Car title loans can rival payday advance loans in the interest rate, and are very common except the collateral is your car instead of your bank account or paycheck. Tax refund loans, where you get an “advance” on your anticipated refund, this is bad because you will be giving up ten to fifteen percent of that refund in fees, and remember a refund is just money that you overpaid on your own income, so really you are short changing yourself when you can’t wait. Friends or family, is of course always a bad idea, for the obvious reasons. Strained future relationships bad holiday visits, the list goes on.
[Read: Florida Credit Card Debt Laws]
Of course you cannot always avoid these types of loans and sometimes there is no alternative, but if you are armed with the knowledge of how they work and what types of interest you will be facing you can prepare yourself for it and do the right thing. It is your money don’t just give it away.