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Beware quick but not so easy loans

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WHEN YOU need money quickly, it is tempting to look for a quick solution. Who wants to spend time researching loan options when the fridge has just died? You need $500 and you need it fast.
If you lack a savings account, you do indeed need to take action. Just make sure it is the right action. Opting for the “easy way out” could leave you with “no way out” in a matter of weeks.
First, call your creditors. Before you borrow new money, contact your credit-card and mortgage lenders. They may offer some leniency on your current debts, which would free up a bit of cash. Some have hardship programs that permit skipping a payment or making a smaller minimum payment. Maybe your creditor would be willing to reduce your interest rate.
Second, beware “quick and easy” solutions. Advertisements for “quick and easy” loans can tempt any consumer. Don’t be lured into making an expensive mistake.
What are your “quick and easy” loan choices?
Payday loans, often referred to as “quick cash” or “check cash” loans, are easy to obtain because no credit check is required. Unfortunately, they carry steep annual interest rates – sometimes more than 500 per cent.
Borrowers find their debt snowballs if they cannot pay back the loan by their next payday. Some choose to extend the original loan, along with the added finance charges. Some visit another payday lender to take out a second loan, and a third loan, and so on. Center For Responsible Lending found that the typical payday borrower eventually pays back $793 for an initial $325 loan.
Twelve states have banned payday loans. The US congress passed a law capping the interest rate that payday lenders can charge military families at 36 per cent APR. Payday lenders claim their loans are less expensive than incurring repeated bounced-check fees, late-payment fees or having your utilities cut off. You do the math – is it worth paying an annual triple-digit interest rate?
With car-title loans, you offer your car as security for the loan. You must provide your car title and a set of car keys to the lender, who holds them until the loan is repaid.
Like payday loans, car-title loans carry a steep annual interest rate and can trap you in a cycle of debt. You will probably be required to make one large payment after a short period of time – a month or so. If you cannot make that balloon payment, you risk losing a very important family asset – your car.
Pawnshops are appearing in more middle-class neighborhoods and many have shed the image of the shady fencing operations that once plagued them. Pawnbrokers take a borrower’s possession – a piece of jewelry, for instance – as collateral for a loan that usually carries an interest rate exceeding 20 per cent. If you do not repay the loan with interest by a certain date, the pawnbroker can sell your possession. The reputation and regulation of pawnshops vary from city to city.
Jordan Rzad is the senior director responsible for internet marketing at Houston Better Business Bureau.

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