Need Cash Fast? How to Pick the Best Loan
The Worst Options for a Loan
Personal bank loans. It may seem surprising, but this standby is definitely a dud. You won't get your money quickly: You'll fill out forms galore and undergo plenty of scrutiny, and the approval process may drag out for several weeks. After all that, you won't get great terms, either. At press time, the average interest rate on a personal bank loan is 14.8 percent. That's actually higher than the average rate on a credit card purchase: 14.2 percent.
Payday loans. Perhaps you've driven by a brightly lit storefront advertising one of these services and wondered whether it would be a good option in a quick-cash crisis. Don't even think about it! These loans should be avoided at all costs, literally.
Payday lenders offer to float you some cash until your next paycheck. You simply write them a check postdated two weeks hence, or whenever your next salary payment comes in. They charge a fee, typically $15 for every $100 they loan. If you borrow $500, that means a $75 fee. That translates into an annual percentage rate (APR) of 390 percent -- and it rarely stops there. When payday arrives and the loan comes due, borrowers who don't have the $575 will have their loans rolled over, but with an additional 15 percent fee, bringing the total to $661. In a year, the APR could hit four digits. "Payday loans are a complete rip-off," says Scott Bilker, founder of DebtSmart.com.
Title loans. In these shady deals, not even legal in some states, a company lends you money in exchange for the title to your car. Borrowers are usually asked to hand over a set of car keys and typically receive no more than a third of the car's value. As for fees, it's standard for title lenders to charge $25 for every $100 borrowed. Most title loans are due in a month, but as with a payday loan, lenders try to keep rolling them over -- and charging you. Miss a payment date and your car can be sold at auction.
Originally published in Ladies' Home Journal, August 2006.
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