What is Considered a High-Interest Rate For a Loan?
Having bad credit or no credit at all can put you in a tough spot when it comes to needing a loan. The loan may be for any unexpected expense that you can’t afford, and loans such as these will usually come with a higher interest rate. These loans with higher interest rates can trap you financially, bringing you into a nonstop loop of debt that will only worsen your current situation. This is why it is important to look into any other available option before jumping into a high-interest rate loan. With that being said, you may be wondering – what exactly is a high-interest rate loan?
A high-interest rate loan will be considered anything that is above 36%, as this is the highest APR that consumer advocates deem as affordable. High-interest rate loans will usually be offered through store-front lending agencies that state they can provide a loan within the same day. These agencies may not even check your credit or dive into any of your financial conditions, as their goal is to lend to everyone and anyone. While these loans will usually not be more than a few thousand dollars, high APRs and short repayments terms make them nearly impossible to get out from under – especially if you are already in a financially stressful situation. As the end of the terms approaches and an individual may be unable to repay the loan, they may borrow again and continue this vicious cycle – resulting in more and more debt.
An example of a high-interest rate loan includes a payday loan, in which a lender extends high-interest lending terms based on income. It is also commonly referred to as a cash advance loan, as the payment terms begin on the individual’s next paycheck. If the loan is not repaid on the first payday, then a fee will be added and the cycle will repeat. As the loan is not repaid in time and the borrower incurs fees, the interest alone can account for more than the actual loan amount. Loans such as these are extremely harmful to one’s financial situation – avoid them at all costs.