Victims of Debt Consolidation Loans
By Brad McDonnell on Tuesday, August 28th, 2007 :: 9:51 pmCategory: Watching Out 4 You
Debt consolidation helps many consumers pay off their financial obligations, but the debt-relief program can also carry adverse effects. When using a predatory lender, such as payday lenders and pawnbrokers, to finance debt consolidation you may actually increase your debt total.
With the debt consolidation process, you use the proceeds from a loan to pay off all your creditors. However, when you use a loan that carries unreasonably high interest rates and bad repayment terms, you reverse the debt-relief process and incur more debt. Below lists two loans you should avoid for debt consolidation:
- Payday Loans
- Pawnshop Loans
Payday Loans
Payday loans often carry an annual percentage rate near 300 percent. If the borrower fails to repay the loan within the determined timeframe, the remaining sum is rolled into another interest-baring repayment period.
Pawnshop Loans
The pawnshop loan-to-value ratio is often less than 25 percent. For instance, if you decide to hock your $1,000 plasma television to pay off debt, you’ll probably receive only a $250 loan advance. Therefore, as a debt consolidation loan, pawnshop advances are risky and require you to post a lot more value in collateral than the total value of your debts.
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