Types of Loans You Should Avoid

We have probably all been in a situation when we needed a significant financial boost and when we considered taking a loan. There are loans intended for most various purposes, with different payout periods, different repayment conditions and interest rates. If your credit rating is satisfactory, you should have no problem with being granted a loan of any kind.

LOANHowever, if you have bad credit rating, there are not many loans that could be granted to you. One of the loans you could take in such situations is guarantor loan, which has certain advantages but also some disadvantages. On the positive side, these loans are granted even to those with bad credit rating, they do not have too high interest rates and they usually cover a relatively short period (1-5 years). They require a guarantor who agrees to repay your debt in case you are unable to do so for any reason. On the bad side, it may not be easy finding a guarantor, and this type of loan puts a lot of responsibility on both the borrower and the guarantor.

Guarantor loan

If you are in a real need of financial help and you are considering the possibility of taking a loan, a guarantor loan may be the best option. There are many other types of loan, and in this article we will focus on some you should avoid no matter how badly you need money.

Title loans

Even though they are easy to be granted, which may seem rather tempting, title loans are extremely risky and have a range of bad sides. If you are a car owner and have a title for it, you allow the lender hold onto the car title and he in exchange gives you a loan. First of all, the amount of this loan is always only a minor part of the car’s worth. The interests and fees are very high, and even if you pay out the full debt, you will pay more than you have borrowed. If you do not pay out the loan, the lender gets the right to take your car.

Payday loans

These loans are short-term loans of small money amounts, used usually to get you through until you receive your next paycheck. You give a lender a post-date check and authorize him to receive the funds equal to the amount you have borrowed, plus an interest. You are given cash immediately, and when the payday is due, the lender receives the money you entitled him to. This type of loan is quite risky. Because not only that the fees are high, but also if you do not receive the money you have expected and you are not able to repay the lender you may get caught in a cycle which is difficult to get out of.

Pawn shop loans

Pawn shop work in a way that you hand over an item (such as a fine piece of jewelry, a piece of technical equipment, and antique item etc.) and get a percentage of the item’s value in return. It may seem as a good solution since it is quite easy get the money when you pledge an item. However, you get only a minor part of the item’s value, and if you are not able to repay the loan in due time, the pawn shop gets to keep the item.