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Avoid These High-Cost Loans: O1ne Mortgage’s Guide

There are many valid reasons to borrow money, and sometimes taking out a loan is the only option when bills start piling up. However, certain types of loans come with high fees or interest rates that can trap borrowers in a cycle of debt. To help you avoid this, O1ne Mortgage advises steering clear of these five types of loans.

1. Payday Loans

Payday loans might seem like a quick and easy solution, but they often come with extremely high fees and short repayment terms. Typically, payday loans are for $500 or less, need to be repaid within 14 days, and charge a $10 to $30 fee for every $100 borrowed. While the fee might appear small, the short repayment term can make these loans difficult to pay off. For instance, the annual percentage rate (APR) for a $300 payday loan with a $45 fee and a 14-day repayment period is nearly 400%. In comparison, most credit cards have APRs under 30%.

If you can’t afford the full repayment by the due date, you might incur additional fees to renew the loan. Some states allow you to extend the repayment period without extra costs. Consider alternatives like small-dollar loans from large banks or payday alternative loans from credit unions.

2. High-Cost Installment Loans

Installment loans, in general, are not inherently bad. These loans provide money upfront, which you repay in installments—weekly, biweekly, or monthly. Personal loans, mortgages, auto loans, and student loans are all types of installment loans. However, some installment loans come with high fees or interest rates, resulting in APRs over 150%.

These loans are often available online and at some retailers. They can range from $500 to several thousand dollars, with repayment terms from a few months to two years. Despite longer repayment terms making payments more manageable, the high costs can still lead to significant debt. Many borrowers end up refinancing their loans, paying more in fees and interest than they initially borrowed.

3. Auto Title Loans

Auto title loans allow you to borrow money quickly using your vehicle’s equity as collateral. These loans often don’t require good credit or even an income, making them an option in a pinch. However, they usually come with high costs and short repayment terms, making them a risky choice. Failure to repay the loan on time could result in the lender repossessing your vehicle, leading to further financial issues. These loans are illegal in many states, so exercise caution even if they are permitted where you live.

4. Pawnshop Loans

Pawnshop loans offer short-term loans using an item of value as collateral. If you repay the loan, you get your item back. If not, you might be able to extend or renew the loan for a fee, or the shop can sell the item. While some pawnshop loans have reasonable fees or interest rates, making them a viable option if you need money fast, the costs can vary significantly based on location and could equate to a triple-digit APR in some cases.

5. Credit Card Cash Advances

Using your credit card to get cash from an ATM, bank teller, or online transfer, or using a check tied to your credit card account, is generally not advisable. Credit cards typically charge a cash advance fee—a percentage of the amount requested. The cash advance balance starts accruing interest immediately, often at a higher rate than purchases.

Frequently Asked Questions (FAQs)

• What’s the Best Type of Loan?
• What Credit Score Is Needed for a Personal Loan?
• How Do You Improve Your Credit Score?

Before taking out a high-interest loan, consider using tools like Experian to match with a personal loan based on your unique credit profile. These tools offer a free way to quickly compare loan offers, check your credit report and score, and get insights into improving your credit score.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. Our team is here to help you find the best solutions for your financial situation.

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