Types of Loans You Should Try Your Best to Avoid

February 1, 2023

Getting stuck in a financial situation where you absolutely have to ask for help can be difficult. The fluctuations in the economy, financial emergencies like medical bills, accidents, and business loss can lead to an immediate need for money. Most of us were taught to consider loans as an awful practice but sometimes loans are the only option to get you out of trouble. However, there are some loans that you should definitely try your best to avoid.

Payday Loan

Financial experts unanimously agree that payday loans are some of the worst loans out there. These lenders offer you a small amount of money with exorbitant amounts of interest and hidden provisions that you don’t find out about until much later. 

The malice of payday loans is further aggravated by the practice of “rollovers” which is an increase in interest rates in case the borrower fails to make the first payment on the due date. The lender allows bending the agreement to relieve the borrower the first month and impose further interest on the subsequent payments. Due to the rising interest rates, the borrower is knee-deep in debts and ends up in a downward debt spiral before they know it.

Credit Cards Cash Advance

While credit cards cash advance may seem like a great option considering you don’t need to deal with the paper and the payment is instant, they are among the loans you should avoid unless absolutely necessary. Credit card rates are insanely high, up to 17%, and the rates of credit cards cash advance can be as high as 25%. The fees are high and the interest rates are higher. It is not as bad as payday loans but still bad enough to get you sinking in debt fast.

401(k) Loans

401(k) loans are a kind of loan you borrow from yourself. Some workplaces allow you to tap into your retirement account and take out around 50% of the account balance and up to $5p,000 maximum cash. This is a huge blow to your retirement savings and disrupts your retirement plan to a huge extent. The worst setbacks of 401(k) loans are that you lose the power to attain compound interests, and you need to pay back the loan in 90 days in the event that you lose your job.

Car Title Loan

Car title loans are a notoriously bad option. The deal comprises you to borrow money at ridiculously high interest (as much as 300%), and you are required to pay back the money in full amount in about 30 days. Moreover, you put the title of your paid-for-vehicle as the collateral in the event of default. The loan amount is usually a fraction of the car’s entire market value.

Casino Loan

Casinos often offer credit devoid of any interests or fees and the sole purpose of this is to gamble. You shouldn’t take a casino loan unless you have balance in your checking account because casino lenders also have te right to lien your house and assets in case of losing the gamble.