Did you know there are over 31.7 billion small businesses in the US? Many small-scale business persons choose to pick high-interest loans when looking for funding. These are loans that have an annual interest rate above 36%.
High-interest loans assure you of fast funding and very easy application. You require very little to qualify for this loan; the lenders may not even check your credit score.
This seems like the easiest loan to apply for as compared to others. However, they may lead to a continuous cycle of debt and, in extreme cases, poverty.
This is because these loans charge very high-interest rates and short repayment terms, making them difficult to pay back.
This article discusses how to avoid paying high-interest loans.
Before applying for a high-interest loan, you should explore all your options. One of them is getting a personal loan offered by online lenders, banks, or credit unions.
Personal loans vary depending on the lender. You should ensure that when choosing a lender, you know their requirements. These requirements include income, credit score, collateral, and debt-to-income ratio.
The best personal loans are easy to manage and have good rates. They are a better option than payday loans; using them well can build your credit.
These are types of loans offered to clients by credit unions. They have a maximum annual payment rate of 28%, which is a substantial advantage over high-interest loans.
They also offer longer periods for repayment. Payday alternative loans are not very keen on good credit. They are mostly interested in the ability of the borrower to repay.
PALs enable borrowers to make payments on time with no added fees and low-interest rates.
Credit cards are the most suitable option for borrowers with low credit scores. Borrowers can access a certain amount of money but not the amount in full.
There is a maximum limit that the borrower can reach and not any more than that. Interest rates only apply to the amount of money they have used.
Credit cards offer variable-rate loans; unlike personal loans, you don’t pay the same monthly amount.
Extended Payment Plan
If you are already tied to a high-interest loan, you may consider applying for an extended payment plan. However, it may not be very reliable since it’s only available in certain states.
This option allows you to make lower monthly payments than initially given rates. An extended payment plan will enable you to pay your loan at a smaller pace and over a longer period.
However, you can only use this plan once a year.
How to Avoid Paying High-Interest Loans
If you have a low credit score, getting a high-interest loan may seem like the best option. This loan is an attractive deal, from its fast funding to its easy application process.
However, it will most likely worsen your situation. This is because it comes with extremely high annual percentage rates that you should pay back over a short time.
To avoid this, there are several other options you can pick from that are less stressful than high-interest loans.
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