Emergencies occur without warning. At times, we don’t have ready cash to address life-threatening situations. Such situations include settling medical bills or making repairs to your car. To fund such emergencies, a vast majority of people seek quick cash in form of short term loans.
John is a parent and one day, he received a call from his wife that his son was in an accident. Apparently, the police were chasing a suspect through a residential neighborhood. The suspect lost control of the vehicle, veered off the road and hit the boy who was cycling along the pavement.
The boy was hospitalized with minor injuries. Before being discharged, the hospital required them to settle the hospital bill. Since John was between jobs, he was unable to pay the hospital bill through insurance. To settle the bill, John sought a high-interest loan.
legal loan sharks
What is a high-interest loan?
This is a short term loan to help bridge the gap between an emergency and your next paycheck. Thanks to the quick cash, you are able to solve your immediate problems. What you need to know is that short term loans are not bad. The problem lies when borrowers fail to fulfill their responsibility. That is paying off the loan. Unlike a bank loan, high-interest loans are available with exorbitant interest rates.
Today, you can find hundreds of mobile apps run by online companies. These companies specialize in giving out short term loans to individuals. The loans are offered with interest rates ranging from 34% to 450%. This depends on the amount, the credit score of the borrower and the date of maturity.
The general expectation is that the borrower is to pay the loan once their paycheck clears. Normally, the borrower pays off the loan in installments until the whole amount is paid off or paid as a lump sum.
Based on research, the high-interest loan industry is worth $90 billion. People normally borrow from $500 to $5000. A good example of a high-interest loan is payday loans.
A payday loan is a small amount of money lent to a borrower at a high rate of interest. The loan is given to the borrower on condition that when the borrower receives their next paycheck, they will clear it. This type of loan is provided by businesses and not banks.
Want to know how it works? As the borrower, you approach a payday loan lender with your paycheck. After coming to an agreement, you hand the check to the borrower. To redeem your paycheck, you have to pay the loan and the interest in one lump sum. The loan must be paid in cash. If you want to roll the loan to another paying period, pay the finance charge.
High-interest loans vs Loan sharks
There are differences between high-interest loans and loan sharks.
When it comes to high-interest loans, there are very little restrictions. As such, they are easy to get as no security is needed. Also, borrowers don’t require their credit history.
When you seek a loan from a loan shark, you have to provide security. The security can be in form of an asset such as your car. The loan shark holds onto the security until the borrower pays off the loan. If the borrower fails to pay off the loan, the loan shark recovers the money by selling the security.
Flexible loan limits
As said earlier, high-interest rate loans are short loans. They bridge the gap between an emergency and your next paycheck. Since its a short term loan, the quick cash is easy to get. As such, it is more flexible than loans from loan sharks. As a borrower, you can ask for $300 to $5000 provided you are capable of repaying.
Loans from loan sharks have stringent borrowing limits. For starters, the amount borrowed is dependent on the security provided. For instance, if you provide jewelry as security, the loan shark will value them. Once the valuation is over, the loan shark will give you a loan depending on the appraisal.
It is possible to get a high-interest loan in minutes. Thanks to technology, all one needs is to download an app built by the loan provider. The borrower must sign up to receive the money in minutes. Normally, the app will dispense the cash according to set conditions. For instance, if first-time buyers qualify for $100 or $200, this is what you get.
When it comes to loan sharks, the process is a bit lengthy. For starters, you have to provide security. This has to be appraised first. The process can take at least 24 hours. Once the security is appraised, the borrower will receive the money. What you need to know is that lengthy negotiations may be involved too.
High-interest loan providers are registered and licensed by state and federal agencies. As such, they adhere to regulations set by the state and the federal government. This means high-interest loan providers operate legally.
When it comes to loan sharks, their operations are illegal. That is why it’s hard to find a legal loan shark. As such, they do not adhere to consumer protection laws.
In case you need fast cash and a short term loan provider to solve an emergency, a high-interest loan is a good choice. What you need know is that its not a great one. You do have other choices which can help you bridge the gap between paychecks. Such choices include a personal loan from friends and family. You can also sell unused items such as clothing, household stuff, and others.
Let’s face it. Emergencies are a fact of life and since we are unprepared for them, taking a short term loan to solve the issue is good. Before doing so, it is important to learn more about the providers. Knowing more about the providers saves you the agony of high interests.
Remember, if you seek a high-interest loan to solve an emergency, pay off the loan once your paycheck comes. This allows you to get back to your normal life.