Fred Harteis News Articles - LOOKING FOR A QUICK LOAN? There's no shortage of companies willing to help you out of a bind. But if you aren't careful, those offers of fast cash could leave you significantly worse off than when you started.
Here are five consumer loans you're better off skipping:
1. Payday Loans
Payday loans are a treacherous beast. They're small in size: The typical borrower takes on just $300 to $500, according to Carol Hammerstein, spokeswoman for the Center for Responsible Lending. The fee is typically $15 per $100 borrowed, and there's no interest. They're meant to be paid off within two weeks, so a $45 or $60 fee to help you patch things up until the next paycheck seems like a small price to pay. As collateral, the borrower typically writes a personal check for the total amount owed to the lender, to be cashed after two weeks, or signs over electronic access to his or her bank account. (These places often use illegal tactics to discourage people from bouncing checks like telling them they'll be placed in jail, according to consumer advocates.)
2. Car Title Loans
Car title loans are very similar to payday loans. They are advertised as modest short-term loans, in which the lender takes as collateral the borrower's car. Unlike the average payday loan, though, car title loans can be as high as several thousand dollars and are often based on what your car is worth, averaging 55% of its value, according to a recent report on car title loans by the Consumer Federation of America. The median smallest loan amount was $175, according to the CFA, and the highest median: $2,500. Car title loans typically have to be paid back after one month, although the specific terms can vary; some lenders structure the loan to be repaid in several installments, over a longer period of time.
3. Cash Advances
When you're in a cash crunch, your credit card can conveniently help out with some quick cash at any ATM. But these cash advances also come with a very steep price tag. First, there's the interest you'll be charged. Right now the average is 22%, according to the latest credit-card survey by Consumer Action, a consumer advocacy group. Cash advances also can carry pretty steep fees, ranging between 2% and 5% of the amount borrowed, with no cap.
Suppose you take a $100 cash advance at a 24% APR. Assuming a one-time $10 fee -- the minimum with most cards -- and a $2.02 finance charge for the first month, your annualized cost for that loan come up to a whopping 144%. "It's when you factor in the fee that you get the true cost of the cash advance," says Curtis Arnold, founder of Cardratings.com, a credit card information web site. "And then you could be looking at an effective APR of 200%-plus."
4. Overdraft Loans
Virtually anyone with a checking account these days has what most banks advertise as "courtesy overdraft protection," which allows you to draw money from an ATM or use your debit card in stores, even if your account balance is $0. That comes in exchange for a seemingly small fee of $35 on average. So if you're low on cash, you could in a pinch have your friendly bank help out, right? Think again. "Overdraft fees are a form of predatory loan made by banks," warns Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, or USPIRG. The main reason: Because overdraft is automatic, you could get hit with that $35 fee any time you use your debit card or write a check, which could be several times a day. Suppose you charge a $4 latte, not knowing your checking account has hit $0. Enjoying your $39 cup of coffee?
5. 401(k) Loans
If you have a 401(k) plan at work, chances are you can borrow as much as half of your savings balance, for any reason you like. More than 83% of 401(k) plans allow such loans these days -- and almost one-quarter of eligible employees have taken advantage of the offers, according to the Profit Sharing/401(k) Council of America, or PSCA, an industry research group.
To be perfectly clear, 401(k) loans aren't nearly as bad as the other loans we've outlined above. You borrow from your own savings, and pay yourself back via payroll deductions at a reasonable interest rate -- typically prime plus 1%, or currently 9.5%, according to David Wray, president of the PSCA.
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About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures. Brett Deimler leads Deimler International.