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Why To Avoid Unsecured Loans

By Edited Jun 17, 2016 0 0

During these tough financial times it would be considered an easy way out to get an unsecured loan. This is although quite the opposite, since getting a high interest unsecured loan will actually just postpone the problem and make it even bigger.

Normally when people live over their salaries they resort to credit cards. This happens to most of the people every month and when their bank accounts drop to zero two days before they have their paychecks, they use their credit cards. This is an easy way out for the two days. For a short period like that it will work since you can't really spend so much that you would be in debt, because you can always pay off the whole credit card bill when you get your salary in two days. The problem with this kind of behaviour is that you could manage to avoid this by creating a monthly budget. It is a good idea to write it down and stick it on your fridge door. That way you will be looking at it every morning and remember that you have to count the money that you spend today. Creating a budget for the month is not that big of a deal. Just write down your salary and deduct the taxes, the necessary bills, and everything else that has to be paid during the month. The rest is left for you. Divide that amount by the number of days in that month and you have your daily budget.

The biggest problem with unsecured loans is the interest rates. Since you are not providing the bank or the ocmpany that is giving you the loan, any conformation that no matter what, they will get their money back you will pay a higher price for the loan. This adds up as the interest and the handling costs of the loan. The banks are making their living with the interests of the loans that they givve, the diffferent service charges that they are billing, do not add up to a significant amount. They are merely supplemental. The interests are what the banks live on and that makes it possible for them to be giving away loans. It is simple mathemathics, when you are not sure that the person you are giving the money is able to pay it completely back, you need to charge a higher price for the loan. This is a safety precaution, since giving out free money is not a very food business. When you take more money for the loan that you give to people with poor credit you can afford a few of them not paying it back on time. This is the case with unsecured student loans that are basically just adding up until the student graduates. When they finally finish with their studies, they will start to pay the money back, with interests. If it is a private loan, the interests are high, with government funded loans you usually get very low interests since the government is paying the loan if you are unable to do so.

When you are thinking about getting an unsecured loan to cover up for your bills, you are basically talking about debt consolidation. Payday loans are a very popular way for this purpose. Simplified, it is a small loan that you use to whatever you want. It might be the electric bill or the gas bill. It could even be a short weekend trip to the Bahamas. That is not important, but what is, is the interest rates. The companies providing payday loans are raking in a big amount of money and like I said before, it is because of the interests. They usually charge a small amount for the loan and that is all. It sounds simple since they might be taking $50 for a loan of $2000 with the loan time being two weeks. You get your paycheck and pay the loan and the extra fifty bucks for them borrowing you the money. Lets do a little counting. $50 is 2.5% off $2000. If you keep adding that up for the whole year, you would be paying $600 for having a loan of $2000 for the year. A normal mortgage or a secured loan might have the interes of 3-5% depending on where you live and how long is the loan time. For this particular payday loan the actual interest that you would be paying is 30%. And I did not exaggerate here, the actual payday loans have higher interest. You don't want an unsecured loan like this.

Ther e are a lot of unemployed people nowadays and even if the numbers are getting lower it seems like more and more families are facing unemployment. If you are not owning your own house the only thing that remains is unemployed unsecured loans that are basically meant for living expenses and consolidation. You will have to pay off your other credits and bills for the time of unemployment because when you don't have a steady source of income, you will not be able to pay them. The significant difference between unemployed unsecured loans and the regular ones is that you won't be paying the monthly payments until you find yourself a job. Be careful with this because you might just start to like unemployment too much since you are not working and you still have enough money to live. The interests are being added to the loan and eventually you will be paying a big amount so do everything you can to avoid these kinds of unsecured loans.



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