Be Careful with Personal Loans: Fixed Payments and Impossible Interest Rates

Have you heard about  loan  offers that can help you pay your bills and leave you with a small fixed-rate monthly payment? Are you thinking about borrowing for personal, family, or household use?  These kinds of loans are called “consumer loans,” and with many of these payday loans, promises for quick cash with easy financing may not be as helpful as they seem

What is a Consumer or Payday Loan?

You may have seen loans like these advertised on television or in radio commercials.  For many of us, the promise of extra money to cover our looming expenses sounds like a relief in this economy, even if we’re borrowing a loan with a high interest rate.  These loans offer fixed monthly payments that are supposed to be convenient for borrowers without any added hassles.  And what’s more, they promise payouts even to borrowers with bad credit histories.  But often, the interest rates attached to these loans don’t tell us what borrowing actually means for us in the financial long run.  Across the state,  new laws  are starting to regulate lending practices that leave those who have borrowed “in a cycle of debt and dependency.”  You may want to take a closer look at the terms of these loans and consider whether they’re doing more harm than good.  Many times,  debt settlement  or  bankruptcy  may be the better and safer option for you.

How Can Borrowing Hurt You?

In most cases, the interest rates on loans like these can vary considerably depending on the type of loan and the amount you want to borrow, often between 18% and 34% for short-term, high-interest loans like the ones you’ll see advertised.   So what do these interest rates and the long-term payment periods mean for you and for your family?  Take, for example, a $10,000 loan that offers fixed monthly payments of $743.49.  If you’re promised 84 months to pay back the loan, you’re going to end up paying a total of $62,453 over the course of that seven-year period (Borrowing? Read the Fine Print).  That’s more than six times the amount of the original loan—you’ll end up paying an additional $50,000 on top of the $10,000 you borrowed initially!  

Even if you borrow a lower amount, you’ll still be paying back far more than the amount of your original loan note.  Consider a lesser amount, maybe $5,000.  Now, your payments aren’t so high, perhaps $486.58 per month across a 7-year period.  But even with a smaller loan such as this one, the series of fixed payments over 84 months will mean that you pay a total of $40,872.  Remember: you only borrowed $5,000!  Before you find yourself agreeing to one of these short-term, high-interest loans to get yourself out of debt, you should speak to a qualified bankruptcy attorney  in your area who can answer questions you might have about  whether bankruptcy is right for you , and whether there are alternative options to lessening your debt.