5 Ways Quick-Approval Personal Loans Hold You Hostage

easy personal loans

We’ve all been there. You’re driving home from work when you hear a loud pop — you have a flat tire. Or, your child falls off the swing set and needs stitches. Perhaps the dog ate something he shouldn’t have and now needs to go to the vet.

These unexpected emergencies happen all the time, leaving many people in a bind. When you consider that the Federal Reserve Board found that nearly half of all Americans don’t have $400 saved for an emergency, it’s easy to see how unexpected costs can become a real crisis.

Without savings or good credit, some families turn to quick and easy personal loans, such as payday loans, title loans, or other short-term debt. Although these loans can get you the money you need fast, they can have serious consequences.

How personal loans work

A personal loan is a broad term used to describe many different kinds of debt. In general, it’s a loan you take out to cover personal expenses, such as medical bills or a car repair.

For a traditional personal loan, you would go to a bank or financial institution and submit an application for a loan. The lender reviews your credit history and income to determine whether you’re a good candidate. The process can take anywhere from a few days to a few weeks to review your application and to disburse your funds.

Loans based on your credit history and income can have repayment terms as long as seven years, and you can borrow as much as $100,000. Depending on your credit, you could qualify for a personal loan with an interest rate as low as 5.25%, making it a low-interest way to consolidate your debt or handle an unexpected expense.

However, you might be ineligible for a traditional personal loan if you have poor credit or low income. If that’s the case, you might be tempted to turn to a rapid-approval, short-term personal loan, instead. Some common options include:

  • Payday loans: With a payday loan, you borrow a relatively small amount of money to cover an emergency or hold you over until payday. Your loan is due when you receive your next paycheck.
  • Car title loans: If you take out a car title loan, you give the lender the title to your vehicle in return for a small loan. Most vehicle title loans have repayment terms that are 30 days or less.
  • Short-term loans: Short-term personal loans are available online. You can borrow small amounts quickly, but they often have high interest rates.

For all three types, the benefit is speed. You might go to a loan distribution center in person, use your car title to borrow $500 on the spot, or complete an application online and get your money in as little as 24 hours.

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Easy personal loans make borrowing so simple and quick, you can end up in debt without fully realizing what you’re doing.

The problem with quick and easy personal loans

Applying for a loan and getting the money quickly might sound like a great solution. However, they’re often not a smart option. Here are five reasons why you should avoid these types of personal loans.

1. You’ll pay much more in interest than you borrowed

Payday and rapid-approval lenders can give out loans without credit checks for one reason: They charge astronomical interest rates. According to a report by the Consumer Financial Protection Bureau (CFPB), this type of debt can have interest rates as high as 400.00%.

You might not realize just how big that number is until you start making huge payments on your debt.

For example, if you took out a $1,000 traditional loan at 5.00% interest with a 12-month repayment term, you’d pay back just $1,027.29 in total. However, if you borrowed $1,000 from a no-credit-check lender and had an interest rate of 400.00%, you’d pay back a staggering $4,130.85 over 12 months.

Your relatively small loan could quadruple, costing you thousands more than you originally borrowed.

2. It’s hard to break the loan cycle

Once you’ve taken out a short-term personal loan, vehicle title loan, or payday loan, it’s hard to stop the debt cycle. According to the CFPB, more than four out of five car title loans are renewed the day they’re due because the borrower can’t afford to pay it off.

Thanks to high interest rates, it’s understandable why you can’t get ahead. You’ll likely need to turn to your lender again and again to keep up with your payments and make ends meet.

If you borrow a $500 payday loan, you might have to pay back $1,000 in two weeks. When the due date comes and you can’t afford to pay $1,000, the lender might offer to roll over the loan into a new one. Now, your loan is for $1,000, instead of $500. This cycle can continue on, causing your debt to spiral out of control.

3. You might lose your collateral

Depending on what kind of loan you apply for and your credit history, you might have to put up collateral to qualify for a loan.

Collateral is something of value you use to guarantee the loan. If you can’t afford your payments, the lender keeps the collateral. In the case of vehicle title loans, the collateral is your car. Fall behind, and the lender can seize your vehicle.

With higher interest rates and short repayment terms, your chances of losing your collateral are high. In fact, 20 percent of borrowers who take out an auto title loan end up losing their vehicles to their lender, reported the CFPB. On top of the money you lose, you’re left without transportation to work, making it even harder to make an income.

4. Many lenders require access to your bank accounts

When you take out a quick personal loan, most lenders will require you to provide your checking account and routing numbers. Although many banks and lenders offer automatic payments as a convenience to their customers, it’s usually optional. With short-term loan lenders, you don’t have a choice.

Because they have access to your bank account, many of these lenders will automatically withdraw the amount you owe on the due date. It doesn’t matter if your paycheck is late or you have to pay rent; the lender ensures they get paid.

Aside from losing money you might have needed for your bills, you also run the risk of overdraft fees and penalties.

5. The repayment term is much shorter than with other kinds of debt

Traditional personal loans can have repayment terms that are three to seven years long. However, most loans that don’t require a credit check have short repayment terms.

With payday loans, for example, you could have just a few weeks to repay the loan with interest. The high interest rates cause the balance to balloon, making it harder to repay.

Think about it: If you took out a payday loan because you couldn’t afford $500 for a car repair, what are the chances you can afford to pay $650 or more when the loan is due in two weeks? Pretty slim. To prevent falling behind, you’ll need to take out another loan. Before you know it, you’re thousands in debt over a minor expense.

Avoiding short-term loans

When you’re short on cash, payday loans and quick and easy personal loans can be appealing. However, borrowing from these lenders can cause you financial headaches for years to come.

If you’re facing an emergency and want to avoid the payday loan cycle, here are alternatives you can use to get the money you need.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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