Payday Loan Consolidation: What It Is and How It Works

Payday loans are expensive, high-interest loans with short repayment periods that can be difficult to repay on time. Borrowers unable to make payments may opt to roll over their loan for a fee. With enough rollovers, this could mean owing more than the initial loan amount read more

3 Reasons You Should Not Take Out Personal Loans

Personal loans can be a way to get cash fast to pay for emergencies and essentials. Unfortunately, personal loans often come along with some downsides that make them a poor solution for certain situations. If you’re considering borrowing some money, below are three reasons to look for alternatives to loans:

1. Interest Rates

Most personal loans come with high-interest rates. Because of this, you may end up paying back many times what you borrowed. While banks and other lending institutions usually keep interest rates competitive, personal loans often come with few restrictions. A lender providing a personal loan may charge an annual percentage rate in the hundreds of a percent, meaning you’re going to pay a lot more for a personal loan.

2. Higher Fees

Personal loans also tend to come with higher fees compared with alternatives to loans. In addition to upfront fees and fees tacked onto the back end of a personal loan, your lender may also charge very high late fees.

Missing a payment may start a snowball effect as a result since you may find yourself scrambling to pay back the late fee without having the chance to make a dent in the principal or interest. This then requires more loans to be taken out to pay back the original loan. In the end, you dig the hole deeper and end up in greater debt.

3. You May Endanger Your Credit

A lender that supplies a personal loan may also have the ability to harm your credit. If you are late on a payment, some credit card companies will offer a grace period before reporting the debt. A personal loan provider may not be as gracious, possibly reporting the late payment on the same day it was due.

As your credit suffers, you end up with fewer lending options in the future. You may also find that your available options come along with even higher interest rates, once again adding to a snowball of debt should you continue to take out personal loans.

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