The risks associated with internet loans are well documented, however, people who are in urgent need of instant cash, still persist in using them. Even though these quick fix loans have the potential to do more harm than good, there is still a big demand for their product. The main reason why so many people are being drawn to these kinds of financial products is because they feel that it is the only solution to their financial problems. In this article, we will take a detailed look at why people feel that internet loans are their only option, what the alternatives are, and what the pitfalls and risks associated with these loans are.
In order to understand what motivates people to apply for a loan via an internet lender, as well as the risks, let’s start by looking at the advantages and disadvantages of internet loans.
The Pros And Cons Of Internet Loans
- The process is quick and easy from start to finish. It is true that borrowing money via a lender on the internet is a lot faster and easier than applying for a more traditional bank loan. With a bank loan, you will have to visit the branch, fill out reams of paperwork, sign countless forms, prove your identity and leave without any money, as the waiting time is typically one or two weeks. With a loan application on the internet, you only need to provide details of your bank account, debit card and proof that you have the means to pay back the loan, and the whole process can literally take just a matter of minutes. Oh, and a decision is typically made there and then, meaning you can have the money in your bank account in hours rather than days. It is the chance to grab some quick and easy cash, which appeals to people who need money urgently in order to cover an unexpected bill or repair to their car or home.
- No credit checks. Most online lenders do not credit check their applicants, and again this is something which appeals to the kind of people who want quick money.
- No security or collateral is needed. These loans are unsecured, meaning that you do not have to put up your home or your automobile as security, in order to get your hands on the money.
- To a lot of people, internet loans feel like their only option, and the people who are drawn to these types of loan are the ones who do not have the necessary funds put away in order to cover an emergency.
- They are not a long term solution to your financial problems, and in fact in the long term, these types of loan, are more likely to add to your financial difficulties.
- Exorbitant interest rates and fees. These loans are simple and easy for a reason, the lender wants your money, and they want lots of your money. They realize that they are probably the only option open to you because you have a poor credit rating, so in order for them to trust you by giving you a loan, they will want to make as much money back as quickly as possible. That is why internet loans always come with high interest rates and fees, and should you miss a payment or default, then you will quickly see a debt that was a few hundred dollars, turn into one that is likely to run into the thousands of dollars very quickly.
- The lenders are often seen as unethical, due to the way in which they go out of their way to target people who are seen by many as being in a desperate situation or vulnerable.
Why Are There So Many Lenders Offering Money To Desperate People?
It appears that you cannot pick up a newspaper, surf the web or travel across town without seeing an advertisement for some kind of quick loan. There are literally thousands of lenders on the internet who are trying to entice people to take out one of their speedy, hassle-free and no credit-check loans. The reason why there are so many, is that there is obviously a big market for them, as more and more people require instant cash loans, so there are going to be financial companies willing to let them have one. A simple default on a traditional bank loan, automobile finance or credit card debt, has the ability to leave your credit report in tatters, and that is only when you need money to cover and emergency situation, that you discover normal lines of credit are not an option. That is why internet loans look like an attractive proposition to a lot of people, they see it as the solution to their short term money worries, without realizing that they are actually making things worse.
So How Do Online Loans Work?
Put simply, the lenders who operate these loans are offering people who have either no credit history, or a poor credit history, the chance to get their hands on some much needed cash. The most attractive thing about internet loans is that they promise a quick decision with funds being transferred straight into a bank account. Typically the loans are offered quickly on the proviso that the repayment date is no longer than one month after the funds have been deposited into the bank account of the customer. One thing that sets these loan companies apart from traditional banks is that they will often offer to lend smaller amounts of money, starting from as little as $20 and going up to a maximum of around $1500 to $2000.
So How Do These Lenders Make Any Money?
The biggest criticisms of internet loans companies, is that they charge high rates of interest as well as fees. They often disguise their high interest rates by advertising them as charges, so a $100 loan taken out with one week to pay it back might incur a “charge” of $45. That seems high enough, however, it is not until you take a closer look that you will find that if that fee was advertised as an Annual Percentage Rate (APR) it would likely run into three figures, or even four. Another way they make money is by charging people who ask for a payment extension, which is when someone does not have enough money to pay the loan back on the day they were meant to. In that scenario, they can ask for an extension, however, it is common practice for the lender to apply a charge for the privilege, whereas failure to pay on time will also incur fairly sizeable charges. In addition to which, failure to pay will mean that the lender may make repeated attempts to take the money from your bank account, which could incur charges from your bank.
Falling Through The Debt Trap Door
One of the pitfalls that people do not see coming, when they take out a short term loan via a company which specializes in providing in these kinds of loans, is the fact that once you have one, it is very difficult to leave them behind. More often than not, borrowers will find that by repaying the loan, interest and charges on time, that they do not have enough money to see them through until their next pay day. That means, that they will have to return to the loan company, and ask them to provide them with another loan, this is what is known as the debt trap, and it is a cycle that could continue for a long time, unless the borrower can find another way to get the money.
Are Their Any Alternatives To Internet Loans?
There are always alternatives, however, most people who apply for internet loans, are either unaware of the alternatives, or they feel that an online loan is their only option. However, according to pewtrust.org, there is now an additional way in which to avoid falling in to the short term loan trap. The Pew Trust has come up with a project that seeks to enhance the alternatives to online lenders, with what they have termed the Pew Safe Small Dollar Loans Research Project. A Pew Trust spokesman went on record as saying, “The Pew Safe Small Dollar Loans Research Project, a two-year initiative, develops research-based, federal policy recommendations to protect consumers from dangerous forms of short-term loans. The project promotes alternatives that are safe and affordable by quantifying the problem, analyzing potential solutions and educating the public.”
Is it ever a good idea to take out a short term loan with a company that specializes in internet loans? Well, not really, and anyone who is under the impression that by taking out one of these loans is a good way to solve their financial problems, needs to look again at the alternatives. There may have been something that they overlooked the first time around, and circumstances may have changed, which means that they no longer have to rely on online lenders.