Installment loans are a convenient way to get the funding that you need, but they come with some drawbacks you need to be aware of. They include:
- Inflexibility with your loan’s terms. Unlike a credit card or line of credit, once you agree with your installment loan’s terms, they’re set in stone. You can’t ask to increase your borrowing limit, change your repayment schedule or amounts or make other adjustments. If you want to change your loan, you may have to get re-approved or pay fees.
- Potential fees. Do your homework to see if the lender charges extra fees, such as prepayment fees and admin fees, before you sign on the dotted line.
- High interest rates for bad credit. Bad credit could drive up the cost of your loan. This is why it’s important to shop around to get the best interest rate and terms.
What is a car title loan?
With an auto title loan , you put your vehicle up as collateral – meaning if you fail to pay back your loan, the lender can repossess your car, boat, RV or motorcycle. For these types of loans, you usually have to outright own your vehicle. You can get this type of loan with bad or non-existent credit and income verification is typically minimal, making this a viable option if you’re relying solely on welfare. However, auto title loans are extremely risky since they’re known for their excruciatingly high interest rates and the precarious nature of your vehicle being repossessed. For example, interest on a title loan can be as high as 60% per year. It’s worth noting that lenders can’t title loans in North Dakota charge more than this by law, and that includes all fees and other costs to get the loan.
What to watch out for with car title loans
If you own your vehicle outright, a car title loan may be a good choice to secure a loan, but you should watch out for these red flags before proceeding:
- Risk of losing your car. With a car title loan, you’re securing your loan with your vehicle as collateral. If you aren’t able to pay back your initial loan plus the interest it accrues, the lender has the right to take possession of your vehicle. Make sure this is a loan your budget can keep up with.
- Steep interest ratespared to conventional loans, title car loans come with high interest rates.
- Disreputable lenders. Not all lenders are equally reputable and trustworthypare different lenders in order to find the lowest interest rate and double check your contract before signing, so you understand the ins and outs of your loan including any fees that may crop up.
Other funding options for people receiving benefits
If you’re shopping for a loan as a welfare recipient, you’ll need to find a lender that will accept your weekly, bi-weekly or monthly level of income, as well as your source of income and credit score. Carefully read a lender’s terms and conditions before signing a loan contract, and be willing to walk away if the interest rate or fees are too high.
- Credit card cash advances. This may be an option if you already have a credit card and haven’t borrowed up to your credit limit. Credit card cash advances have lower rates than payday loans, with APRs usually around 30% – not including additional fees.
- Home equity loans. Are you a homeowner? You may be able to borrow against your home’s equity through a home equity loan or line of credit. This is a secured loan – meaning you use your house as collateral – but it often comes with more lax eligibility criteria than an unsecured personal loan.