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Reasons Not to Co-Sign on Your Grandchildren’s Student Loans

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Co-Sign Grandchildren’s Student Loans

You want to be a good grandparent. Therefore, you might have thought about whether or not you should co-sign grandchildren’s student loans. Or perhaps they’ve already asked you to co-sign, and you’re trying to make a decision about it. While it’s certainly a nice idea, it might not be the best thing for either of you. Here are ten reasons not to co-sign grandchildren’s student loans.

1. It Encourages Private Loans

Federal student loans don’t typically require a co-signer. Notably, these are usually the best available student loans. Therefore, your grandchild should be trying to get those federal loans first. More often than not, those loans will cover college costs. If you quickly agree to co-sign grandchildren’s student loans, then you’re encouraging them to get private loans, which they might not need at all.

2. It Discourages Hard Work

In addition to federal student loans, there are a lot of other ways for your grandchildren to fund college. Options include:

  • Applying for grants and scholarships.
  • Working part-time including on-campus jobs to supplement loans.
  • Working full-time for a year or two to save up for college.
  • Choosing a less expensive college or hacking their education.

When you readily agree to sign their loans, you take the hard work out of it for them. You don’t give them the opportunity to figure out different options. This can be a disservice to them down the line, when they have to think their way creatively out of other financial challenges, but haven’t had the practice in doing so.

3. It Affects Grandparents’ Credit

When you co-sign a loan, you guarantee that the borrower will repay that loan. That shows up on your own credit report. It impacts your ability to borrow money. Therefore, you want to think very carefully before you co-sign grandchildren’s student loans.

After all, your grandchildren are still young adults. They likely aren’t that responsible with their money yet. It wouldn’t be unheard of for them to make late payments or to skip payments altogether. You’ve worked your whole life to establish your credit history. Do you want them to ruin it for you now?

Remember, also, that even if they make all of the payments on time, the loan may still impact your credit score. It adds to your total overall debt.

4. You Can’t Afford It

Of course you want to help your grandchildren go to college. However, can you truly afford to help them? If you can afford to help the outright, then it’s better to gift or loan the money to them directly. If you can’t afford to do that, then you probably also can’t afford to co-sign grandchildren’s student loans. After all, that’s the same thing as taking out that loan for yourself. Can you afford that at this late stage in your life? Are you truly comfortable with that? Would you do it to go back to school yourself?

5. It Can Circumvent the Parent-Child Relationship

If your child needs someone to co-sign their student loans for them, then they might first look to their parents (your children or children-in-law). If their parents said no, there could be a good reason. If you turn around and say, “well I’ll do it” then you might be circumventing the parents efforts. Depending on your family situation, dynamics, and configuration, this could be an important reason not to co-sign grandchildren’s student loans.

6. Parents Have Better Loan Options than Grandparents

If the grandchildren’s parents are involved in their lives and willing to help, it’s better for them to explore loan options before you do. That’s because there are some terrific loans set up for the parents of college students. PLUS loans are the obvious example. These options aren’t typically available to grandparents. If your family is going to support the younger generation through college, a grandparent as co-signer is really a last resort.

7. Your Grandchild Is Only One Family Member

Everyone is facing tough financial times right now. That means any one of your family members might need financial help. If you put all of your eggs in one basket by co-signing on a grandchild’s student loans, then you might not be able to assist other family members as needed. Your other grandchildren, your children, your siblings and your own parents, if they’re still alive, may all need financial help. Where do you want to put your money?

8. It Puts Your Health at Risk

Dallas News reports on statistics from the Consumer Financial Protection Bureau that show that co-signing on a grandchild’s student loans often puts the grandparent into a precarious financial position. They are more likely than others in the same age group to skip medicine and doctor’s visits. And yet, if debt causes stress, they made need those doctor visits more than ever before. If you aren’t in a financial position to lend money directly to your grandchildren then chances are that you shouldn’t co-sign grandchildren’s student loans either.

9. It Will Likely Affect Your Retirement

Investopedia reports that older people with student loan debt often end up working later instead of retiring when they originally planned. Moreover, about one third of baby boomers report that they’ve either delayed accruing retirement income or taken out retirement income early due to those loans. It’s important to think about your own financial future first. Your grandchild has many years left to figure theirs out. But do you?

10. It May Change Your Relationship

When you think about co-signing for the loan, you imagine your grandchild’s gratitude. You are happy to help them out. But it’s important to recognize that this might not be the reality. Your grandchild might drop out of college. They might default on the loan. They might not be as grateful to you as you would think. All of this can have a drastic negative impact on the relationship that you have with your grandchild.

And what if you have more than one grandchild? Are you going to co-sign for all of them? If not, how does that impact your relationship with each grandchild? These are questions to take lightly. Your familial relationships are important. There are other ways for your grandchildren to fund college. There aren’t other grandchildren for you to have relationships with.

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If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. If you want to be able to customize your blog on your own domain and need hosting service, we recommend trying BlueHost. They offer powerful hosting services for $3.95/month!

Can Foreigners Take Out Loans in the US?

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foreigners loans

If you are a citizen of another country who is living in the United States then you might want to know about foreigners loans. That’s especially true right now when coronavirus may have limited your options both for traveling back to your home country and for working to earn an income in the US. Can you get a loan as a foreigner living here? Yes.

Foreigners Loans Are Possible

Although it’s not necessarily as easy to get a loan as a foreigner than it is for a United States citizen to get a loan, foreigners loans do exist. In fact, many types of loans are available to people here regardless of citizenship status. Loans are often based on income and credit history with less, if any, attention to citizenship.

Limitations and Considerations on Foreigners Loans

Here are some of the things that you should know about foreigners loans as compared to getting a loan when you’re a United States citizen:

  • You may be more likely to need a co-signer.
  • The longer you’ve been in the country, the easier it will often be to get foreigner loans.
  • The longer you’re going to live and work in the country, the easier it will be to qualify for a loan.
  • Foreigners with diplomatic immunity may find it harder to get loans.
  • Interest rates might be higher for foreigners.
  • It’s often easier to get mortgages and auto loans than to get personal loans. Mortgages generally require a green card or a valid work visa.

How to Get a Loan as a Non-Citizen in the US

If you’re living in the United States, here are some things that you can do to improve your chances of qualifying for a loan:

  • Apply for a loan with a company such as Stilt that looks at more than just your credit score when considering whether or not to accept you as a borrower. Similarly, you might look for lenders that specifically choose to work with immigrants. Just be careful that you double-check their business history so that you don’t get scammed.
  • Put together a set of documents showing your credit history in your own country. Add to this any documents you have showing your payment history in the United States (such as rent payment history.) Use this information to supplement your loan applications.
  • Request an Individual Taxpayer Identification Number (ITIN). This will help you apply for loans even if you don’t have a Social Security Number. Moreover, you can look for lenders that specifically work with people who have an ITIN.
  • Transfer money from your foreign bank accounts into a United States bank account. This is particularly important for large loans, such as mortgages. Many lenders prefer to see that you have access to funds here in the United States.

Of course, if you do end up qualifying for a loan in the United States, make sure to be a good borrower. Make on-time payments every month. This will help you get additional foreigners loans in future.

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If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. If you want to be able to customize your blog on your own domain and need hosting service, we recommend trying BlueHost. They offer powerful hosting services for $3.95/month!

Everything You Should Know About Mortgage Forbearance

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Everything You Should Know About Mortgage Forbearance

Many people struggle to make their mortgage payments. When a disaster hits, such as the COVID pandemic, those payments become even more of a burden. It’s important to understand that you do have options. Mortgage forbearance is one of those options. Of course, like any financial choice, it has pros and cons. Here is everything that you need to know to make an informed decision about whether or not mortgage forbearance is right for you.

What is Mortgage Forbearance?

Mortgage forbearance, much like student loan forbearance, is a means to reduce or eliminate your mortgage payments for one or more months. It is available for many people who are financially unable to make their mortgage payments at this time. If you find yourself unable to pay your mortgage, it’s important to call your lender to discuss your options. This is one of the options that you should discuss.

Mortgage forbearance has always been an option for home loan borrowers who find themselves facing financial problems. Due to the coronavirus and its associated financial challenges, more people than ever are seeking mortgage forbearance. In fact, the CARES Act specifically includes regulations for mortgage assistance in consideration of this issue.

That said, mortgage forbearance is only a short-term solution. Depending on your loan terms, you may qualify for anywhere from one month to one year of paused mortgage payments. Most forbearance programs fall into the 3-6 month range. Your mortgage is many years long. It’s a way to pause the payments as you get back on track. It doesn’t reduce your overall loan payments. Arm yourself with information about the pros and cons before you decide to go this route.

Benefits of Mortgage Forbearance

The number one benefit of mortgage forbearance is that it provides you with a means to pause or reduce your mortgage payments. This is a way of working directly with your lender during a time when you face financial difficulties. By doing so, you give yourself the best chance of coming out of those financial hardships with few or no penalties to your loan terms and credit report. If you can’t pay your mortgage, don’t ever just fail to make the payment. Call the lender to discuss the options. Mortgage forbearance is a crucial option.

So, to summarize, the biggest benefit is a pause or reduction in mortgage payments, allowing you to catch up financially during tough times. In conjunction with that, it’s a means of keeping yourself in good standing with your lender. It keeps your credit score safe during the period of forbearance. Obviously, it’s a way to keep your home from going into foreclosure.

Downsides to Consider

Pausing your mortgage payments sounds like a great option. If you can’t pay your mortgage, then it just might be your best choice. However, it’s important that you fully understand the terms of this agreement. Some of the potential drawbacks or downsides to consider include:

Your forbearance program eventually runs out.

When it does, you’ll have to make payments again. This could be in one month or one year, depending on the terms you work out with your lender. In some cases, you may need to make even bigger monthly payments once you start paying again (in order to catch up). You may even have to make. lump sum payment to pay it all back at once! Alternatively, the lender may extend the life of the loan.

If you get to the end of the forbearance period and then miss payments, it will negatively impact your credit score. If you can’t meet the terms of the forbearance during the program, it will also negatively impact you. If your financial difficulties are short-term, then the forbearance option makes sense. However, if you don’t see your finances improving in the relatively near future, you might want to consider alternatives.

You may have trouble getting a new home mortgage loan for awhile.

According to Forbes, these programs can lead to negative impact on your ability to qualify for home mortgage loans including refinancing even from the best mortgage refinance lenders in 2020. Yes, it’s true that forbearance doesn’t impact your credit score. And yet, lenders can see that you took this option. They may choose not to support your applications for assistance in the near future as a result.

Your mortgage may cost you more in the long run.

Interest will likely continue to accrue throughout your paused payment period. Ultimately, this means that you’ll pay more overall for your loan. If you can make your mortgage payments now and skip that added interest, that’s your best bet. If you can’t make your payments then the extra interest could be a small price to pay to stay in good standing with your mortgage lender.

It doesn’t kick in right away.

If you have a mortgage payment due immediately then this might not help you. It typically takes a month or so for the new agreement to kick in. Therefore, there’s a good chance that you will still have to find a way to make this month’s mortgage payment even if you can pause future payments.

There might be a better option.

This is only one option. It might not be your best one. The CARES Act covers mortgages from people who have federal loans such as Freddie Mac and Fannie Mae loans. Several states, including New York and California, have also created new rules for mortgages in response to COVID-19. Private lenders can make their own decisions. If you have a home loan with a credit union, for example, then they might work with you in ways that give you better terms than forbearance.

Should You See If You Qualify for Mortgage Forbearance?

Weigh the pros and cons before calling your lender. If you are definitely unable to make your mortgage payment – in full or in part – make that call. When you do decide to make that call, make sure to ask about all of your options. Each lender has different programs with different terms. Mortgage forbearance is only one choice. You may discover that there’s another plan more suitable to your specific needs. It is very easy to make rash impulsive financial decisions when you feel the strain of dire financial straits. Keep your head on straight and approach the problem calmly in order to find the solution that’s best for you both today and in the future.

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Do You Have to Pay Back Unsubsidized Loans?

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Do You Have to Pay Back Unsubsidized Loans

There are a lot of questions going around right now about student loans. The political landscape is filled with ideas about how to address outstanding student loan debt. In the midst of all of the potential changes, you might wonder if you have to repay your own loans. In particular, you might wonder about any differences that exist between subsidized and unsubsidized loans.

Subsidized vs. Unsubsidized Loans for Students

First of all, you’ll need to know the difference between subsidized and unsubsidized loans.

Similarities of Subsidized and Unsubsidized Loans

  • These are both types of student loans.
  • Both of these loans are issued by the federal government.
  • You must be enrolled in higher education with at least part-time credits in order to receive one of these loans.
  • You are allowed six months grace period after school ends before you have to begin repaying either loan.
  • Both types of loans have several repayment options.

Differences between Subsidized and Unsubsidized Loans

Here are the important differences between the two types of student federal loans:

  • You must meet an income requirement of financial need in order to qualify for a subsidized loan.
  • Subsidized loans are for undergraduate education only. Unsubsidized loans are for both undergraduate and graduate school programs.
  • Typically you are able to access more money with unsubsidized loans.

But here is the really big difference: you do not pay the interest on subsidized loans. The US Department of Education covers that interest for you. In contrast, you do pay interest on unsubsidized loans. Therefore, you have to repay more than the cost of the original loan for an unsubsidized loan.

If you have the option, get a subsidized loan. You can also get both. For example, I got as much money as possible from subsidized loans for my undergraduate education. Then I supplemented that with additional funds from unsubsidized loans, for which I have to pay the interest. When I went to graduate school, I got additional unsubsidized loans.

You Have to Repay All Student Loans … But You Have Options

There are many potential changes taking place in the political landscape when it comes to student loans. For example, one of the COVID stimulus payment plans recommended a stipulation that $10000 of student loans be wiped out across the board for all borrowers. Note: that did not pass! But it is one of many ideas floating around the political landscape in regards to student loans.

That said, you do currently need to repay student loans. You have to repay both subsidized and unsubsidized student loans. With unsubsidized loans, you also have to pay interest on the loan.

Remember, a loan is money that you borrow. It might seem like “free money” at the time. Young students especially feel this way. However, it’s borrowed money. You accepted it with the stipulation that you would repay that loan. If you have unsubsidized loans, you further agreed to pay interest on the loan.

Options for Repayment, Deferment, or Forbearance

That said, student loans are some of the easiest loans to work with when you don’t have enough money to make your full payment. You can contact the lender and figure out the best option given your current financial state.

Repayment Plans

Here are a few common options available to people with unsubsidized loans:

  • Standard repayment plan in which you pay a specific amount every month for a set amount of time (typically ten years)
  • Graduated repayment plan in which you pay less per month at the start and gradually increase over that ten year period
  • Extended repayment plan in which either the standard or graduated repayment plan is extended over the course of 25 years
  • Income-based repayment plans, of which there are several, allowing you to pay based on what you earn

Options When You Can’t Make Payments

Many people find themselves unable to make their student loan payments for one reason or another. That is particularly true during times of financial stress, such as the COVID-19 pandemic. You might have the option to apply for deferment or forbearance. There are different types of each but essentially both are methods of delaying your payment for a period time.

Note that with unsubsidized loans you are still responsible for the interest that accrues during the period of non-payment. If you are able to pay the interest as it accrues, rather that postponing those payments, it is in your best financial interest to do so.

You Do Not Have to Pay Unsubsidized Loans During the COVID-19 Pandemic

Here’s something important to learn about: There are special payment rules in place during the coronavirus pandemic. This is part of the CARES Act.

First of all, all student loan repayments are automatically canceled through 9/30/20. Therefore, you do not have to pay back unsubsidized loans (or any student loans) during this time. You don’t have to do anything to qualify this; it is automatic for everyone.

That said, you can still choose to make your payments if you want to. If you can, then you should. You’ll repay your debt more quickly.

0% Interest During COVID-19 on Some Loans

Do be aware that certain student loans are set at 0% interest during this COVID-19 “special rules” period. Therefore, although you usually accrue interest on unsubsidized loans, it’s possible that you will not during this time.

Generally speaking, you will not accrue interest on your loans during this time if the loans are serviced directly by the Education Department. This may include Direct Loans, FFEL, and Perkins Loans – both defaulted and non-defaulted loans. It also includes some defaulted HEAL loans.

That said, it is very important to check with your lender to make sure that you clearly understand whether or not your loans accrue interest during this period. Remember that if you have loans that aren’t covered under these temporary 0% rules, you might be able to qualify for an Education Department student debt consolidation loan through which the rules would then apply.

Again, if you can afford to pay your loans, do so. If you ave unsubsidized loans that qualify for zero interest during this period, then any payment you make will go directly to pay down the principal on your balance.

What If I Just Learned I Didn’t Need to Make Payments During COVID-19?

CARES went into effect in March. The 0% interest and no-payment period extends through September. It’s already June. What if you didn’t realize this and have been making payments? First, check to see that you’ve really made them. If you had them set to auto-debit, chances are that the automated withdrawal was canceled without you doing anything.

That said, if you did make payments since CARES went into effect, and you weren’t required to, you can actually get that money back! If you are in a dire financial situation and really need that money, contact your loan servicer to request the refund.

In summary, unsubsidized loans do need to be repaid eventually. However, during COVID-19, you might not have to make payments. You might not even accrue interest. Even after the CARES Act ends and you ave to make payments again, you have options. These include lower payments, deferment, and forbearance options. Check with your student loan provider to review all of your options.

4 Ways to Avoid Filing for Personal Bankruptcy

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Debt is part and parcel of life to many people regardless of how much they earn per month. However, this can sometimes become too much to bear to a point where bankruptcy seems the only way out. Having to face the pressure from your creditors every day can push you towards that route. What’s more worrying is the fact that you can be a victim regardless of your previous financial strength.

The good news is that you can avoid falling into this trap. Bankruptcy doesn’t have to be the only solution to your financial problems. In addition, it will leave big wounds not only in your credit report, but also in the life of your spouse and family. Most financial experts rank it among the most significant life-altering events that could have a negative impact for a long time. So, before you get to a point where you need to call a personal bankruptcy lawyer, you can try out some of the tips in this article.

Sell Your Assets

Sometimes, you can be at the brink of bankruptcy, but still have assets worth a lot of cash. Keep in mind that being threatened with bankruptcy has nothing to do with your personality. It doesn’t mean you’ve made the worst financial choices because even the finest of people have also been victims before. Selling part of your property may salvage you in this time of need. The best way to deal with this issue is by assessing everything you own.

For example, do you have two vehicles in your garage?  Well, if you don’t need the second one, then, sell it and use the proceeds to pay off part of the debt. You could also look through some of your electronics and other household appliances. These don’t have to generate a lot of money, but just enough to reduce the burden. In fact, it is a better option than being forced to surrender all your assets. Another thing you should note is that this is a temporary situation. You will be able to resume your normal life once you’ve tackled the problem at hand.

Restructure Your Mortgage Payment Plan

Are you still paying off your house?  You can take advantage of this to stave off the threat of bankruptcy. One of the most common monthly or annual expenditures among many people is mortgage payment. If your current plan takes up a lot of your cash every month, you can consult your housing lender and device a new strategy. There are two ways you can make this situation beneficial.

The first option is to restructure the mortgage payment plan. Of course, this will depend on your agreement with the seller, but it should work out just fine. By stretching the installment period, you’ll have a lower monthly payment. This should ease your financial pressure and give you enough space to deal with most urgent debts. As you do so, remember that your mortgage might yield more interest and you’ll end up paying more money than your initial agreement.

If that doesn’t work for you, then, there is another way to go about it. Talk to your housing lender and see if they will accept a temporary refinancing of your mortgage plan. In other words, you’ll still be working under the initial contract, but with slight changes, at least for the first few months. This way, you’ll be able to work out your problems before they get out of hand. Whichever choice you take, it will be worth the struggle at the end of the day.

Get On A Strict Budget

The main reason why some people find themselves flirting with bankruptcy is because of poor budgeting. The fact that you have enough income to finance all your needs doesn’t mean you should spend all the money you have. One could have thousands of dollars at the start of the month, but end up borrowing more funds even before mid-month. Luckily, this is a habit that you can correct before it lands you into trouble.

The first step to doing so is by budgeting your money. If you plan for your income even before it lands in your wallet, you’ll be able to pay off some of the debt. Do not strategize in your head; write it down whether on a paper, in Excel, or any other budgeting software. The moment your monthly dues arrive at the bank, you might not have enough time to structure your budget because of excitement.

Increase Your Income

The most obvious of all points in this post is to generate more money. Many people overlook it and just depend on their one 8-to-5 job to cater to all of their needs. Well, that might work, but it is advisable to add something on top of it if possible. Remember, one reason why you are heading the bankruptcy route might be because you don’t generate enough money to serve all your monthly expenses.

The best part about this is that you might not need to look for a second job to earn more. Is it possible to work overtime at your workstation?  If so, take advantage of it and gain as much as you can. Another option is to look for a part-time job that you can work for a few hours every evening. Anything that can generate a few dollars is a great idea at this point.

Increasing the monthly income is not for everyone. Perhaps, you are in a situation where you cannot re-adjust your daily routine. Well, if this is your story, then, you can ask for help from those around you. However, this doesn’t mean going for another loan as that could be tragic. If your family members and close friends can bail you out, do not hesitate to seek their assistance. A few extra dollars could do wonders for you.

Conclusion

Being threatened by bankruptcy is not something new. Contrary to popular belief, it doesn’t only get to those with poor financial habits. A lot of organized people may also find themselves at the edge due to a small mistake. As such, the way you got to this point doesn’t matter; what matters is how you are going to salvage yourself. It is not impossible to go back to your previous financial stability. All you need is a little extra effort and a good strategy to deal with the most demanding debts.

Personal Finance: Are Cash Loans a Good Idea?

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cash loans

If you’ve ever found yourself strapped for cash due to personal emergencies, you’d know the feeling of having no choice but to borrow money from your family or friends. However, there may be situations when they can’t lend you a hand because they’re also having financial problems of their own. There’s an option to write off your on stride financial loans as well.

Fortunately, there’s an extensive array of easy online loans to help you during times of crisis. One alternative you have is to apply for a cash loan, which is a short-term, unsecured loan. This lending arrangement is a viable option, especially if you have a low credit rating.

Pros

These are the advantages of taking out a cash loan:

  1. Instant Cash

Cash loans are beneficial for individuals with low credit scores and who need access to funds quickly, as is the case for emergencies. Most lenders have their apps or websites where you can fill up a form and process your application with just a few taps on the screen. You’ll, then, receive a response about the status of your request within minutes.

Afterward, you can expect the money to be deposited into your account or claim it personally with the lender. This setup is ideal for emergencies since you might not be able to pay using your credit or debit card.

  1. Convenience

As mentioned above, you can easily apply for cash loans online through the lender’s official app or website. This makes the process more straightforward and convenient for borrowers. You don’t need to fill up several forms by hand and wait for several days up to weeks to hear back from the bank.

Cash loans operate differently from traditional loans, wherein you have to meet with an officer and discuss the options that you have. This includes the amount that you can borrow according to your perceived capability to pay, which is based on a calculation for your income and other assets.

  1. Flexible Use

With traditional loans, like mortgages and auto loans, you’re legally bound to use the money only for the products that you’ve applied for. Moreover, you may even be required to choose among the merchandise of the bank or financial institution’s partner companies, which narrows the area of where and how you can spend the loan.

In contrast, you can utilize cash loan funds on anything you want. The lender doesn’t have a say on where you can allocate your resources. Of course, you should, still, be prudent in spending the money since it’s a debt that you have to repay.

Most people who take out cash loans use them for:

  • Recurring Expenses – The flexibility of cash loans allow you to stretch your budget to accommodate your monthly bills until the next payday. For instance, you may be a freelancer, and your clients haven’t paid you for your services yet. You can apply for a loan and repay it when you receive your paycheck.
  • Special Events – There are also times when you need funds for a special occasion, like your wedding or child’s birthday party. You can take out a cash loan to help cover the expenses. Just make sure you exhaust all means of economizing on the things that you can cut back on before you apply for a loan so that you don’t need to borrow a hefty amount.
  • Unexpected Emergencies – There are unforeseen situations that are out of your control, which entail substantial expenses that exceed your budget. This can include emergency home or car repairs, and even a health crisis experienced by you or anyone from your family. A cash loan can help tide you over and see you through the predicament safely.
  1. Speed

Relatively, cash loans allow you to gain access to money instantly. The speed of application and response is beneficial when you’re facing emergencies and need cash right away. Watch this video to learn about how straightforward the application process is.

Lenders can send you the money right away when you submit the necessary information, such as your full name, age, employment details, contact information, and bank account number. Since several companies offer this type of loan, service providers push for quick services to stay competitive and keep up with their rivals in the industry.

Conventional loans require you to fill out lengthy forms that you have to personally submit to a loan officer. There’s also a  guarantee that your application will be approved because it goes through a stringent screening process based on your income and credit rating.

Generally, applications are filled out and sorted out online, which hastens the process. Nonetheless, you should look out for security red flags to prevent identity theft, especially when giving out personal information, like your Social Security number and bank details.

Cash loans are designed to help people with low credit scores. With this, it’s highly likely that your request to borrow money would be approved. Moreover, you can receive feedback on your application status within minutes or a few hours at most.

  1. Limit Increase

At first, lenders assess a new borrower’s capability to pay and set a limit on how much they can loan based on your salary range. However, if you prove to be a responsible debtor and make repayments on time, the creditor may increase the amount they can lend on your subsequent applications.

For example, you may have started with a 500 USD limit and paid the debt back timely. There’s a high chance that the lender can move up the threshold to 1000 USD. Eventually, you may even qualify for a larger amount with excellent interest rates and terms. With this, you’ll always have easy access to funds when you need them during urgent situations.

are cash loans a good idea

Cons

Meanwhile, there are also disadvantages to applying for cash loans, especially if you don’t go about the process responsibly. Here are the things that you should be mindful of when considering this type of lending arrangement:

  1. High Rates

Most cash loans entail high-interest rates because of its short repayment period (more on this factor later). Lenders earn a profit through finance charges, which refer to the fees that they charge on top of the principal amount.

The primary thing you should know about is the annual percentage rate (APR). To calculate this variable, you must identify the amount you’ll borrow, along with how much the lender charges for the credit and the term of the loan.

Say, you’ll be borrowing 350 USD with a finance charge or interest of 50 USD and a loan term of 14 days. First, you have to divide the fee with the principal amount (50 ÷ 350). With this, you’ll end up with 0.142857, which you must multiply with 365 or the number of days in a year. Divide the answer with the term of the loan, which is 14 days, and multiply with 100 to get the actual APR of 372.45 percent.

Depending on where you live, APRs can go as high as 700 percent. Nonetheless, the average figure of most lenders is approximately 400 percent, which may be due to the competitive industry.

You ought to know the interest rate and the APR so that you can get an accurate idea of how much you will end up paying. The latter provides a more comprehensive insight into the amount charged on top of the principal.

There are two major types of APR:

  • Fixed – This means that the rate won’t change for the duration of the loan period. The predictability of fixed APRs is ideal for including the repayment in your monthly budget.
  • Variable – In contrast, variable APRs rise and fall based on an index interest rate. One thing to be wary about this type of APR is that it may offer lower prices at the beginning of the loan period, but end up costing you more later on.
  1. Possible Additional Charges

Aside from the interest rates and APR, some cash loan companies have damaged the reputation of the industry due to additional and, sometimes, hidden charges. A few lenders have also gained notoriety for making withdrawals from borrowers’ bank accounts without checking first if the amount is enough.

They may even make multiple withdrawals in small amounts if the money in your balance isn’t enough. This can lead to your account getting charged with several overdraft fees, which can exacerbate your financial problems.

If you anticipate that you’ll be late in paying back the loan, you can request a renewal or rollover. This means that the lender can extend the repayment period.

However, they typically charge a minimal fee on top of the principal, interest rate, APR, and the new total. Additional late fees may also be applied if you still can’t finish off the repayment even after the extension.

Some standard hidden fees associated with cash loans involve:

  • Loan Application – Some lenders disclose their interest rates willingly. However, you should also ask whether or not they’ll charge you for processing your loan application. This may seem insignificant by itself, but it matters when you add it to the total amount you have to pay back, which includes the principal and APR. You may also be charged for it even if your request got rejected.
  • Returned Checks – This is similar to an overdraft fee except it’s for issued checks that were cashed in, but the account doesn’t have enough funds to cover the cost. You can accrue additional charges, which usually start at a minimal fee of 20 USD or a percentage of the amount in the check.
  • Customer Service – You have to read through your loan contract thoroughly to check for additional fees, such as payment for customer service. Just like with the loan application fee, you may consider this as minimal, but it raises the amount that you have to pay back in the end.
  1. Shorter Repayment Period

Cash loans are designed with a short-term repayment period. It’s similar to a payday loan, which has the premise of allowing borrowers to stretch their budget and tide them over until their next paycheck arrives.

For this type of loan, you are expected to repay your debt in lump payments about a month or two after receiving the funds. This is unlike traditional personal loans where you can opt for a more extended repayment period, from two months up to two years. Still, you must remember that interest generally goes up for extended loan durations, which doesn’t have a significant difference with cash loans when you consider the shortened term.

  1. Risk Of Debt Trap

Cash loans have gotten a bad rap because a lot of people have fallen into debt due to renewals and late fees. For instance, you borrow 350 USD with an interest rate of 50 USD and a term of 14 days. After two weeks, you have to repay the lender with 400 USD.

However, if you are unable to pay off the loan, you will be charged with another 50 USD to renew or rollover the due date. This raises the amount you have to pay back to 450 USD since the second finance charge isn’t deducted from your previous total. If, by then, you still can’t finish paying off the loan, you can request for an extension again, but you’ll end up with a debt of 500 USD. The cycle can go on forever unless you manage your finances and prioritize completing the repayment.

Nonetheless, borrowers are also responsible for choosing this financing option. That’s why research is crucial so that you’ll know the risks to expect if you decide to pursue this lending arrangement.

Conclusion

Cash loans are a viable option if you need access to cash urgently. The application process is convenient, speedy, and can be completed online. Plus, lenders aren’t as strict on requirements, unlike traditional loans.

Another advantage of this type of lending setup is that you have full control over where you want to spend the money you borrowed. You can use it for recurring expenses, special events, or personal emergencies.

However, be aware of the fact that there are also risks involved when taking out a cash loan. It has higher rates than traditional loans, and some companies even charge hidden fees to boost their profits. There’s also a shorter repayment period, which can increase the chances of the borrower falling into a debt trap. Always do your research and remember to only borrow the amount that you can pay back before the due date.