Avoid Short Term and Payday Loans to Pay your Mortgage
Struggling with your mortgage each month is very stressful. Many homeowners put off other bills and obligations just to scrap together enough to pay their mortgage. This may be due to a mortgage payment that is too high, loss of income or an adjustable rate mortgage increase. Many homeowners will do whatever it takes to save their home including short term and payday loans. Below are some reasons why this type of loan could lead you into bankruptcy and possibly losing your home.
In most cases a short term high interest loan to pay your mortgage is not a
good idea. Short term loans, cash loans or payday loans can put homeowners
in a worse financial situation. The agressive nature of these loans can lead
you into a debt trap.
Marketed as short-term relief for a cash crunch, payday loans carry annual interest rates of 400 percent and are designed to catch working people – or those with a steady source of income such as Social Security or a disability check – in a long-term debt trap.
The terms are set so that borrowers most often cannot pay off the loan on payday when it’s due without leaving a large gap in their budget, often forcing them to immediately take out a new loan after paying the first one back. One recent study found that people who took out payday loans nearly doubled their chances of filing for bankruptcy. These households’ higher bankruptcy risk exists even when compared to households with similar financial status who were denied a payday loan.
Top 5 Reasons you Should Avoid Payday Loans to Pay your Mortgage
- Unlike most consumer debt, payday loans do not allow for partial installment payments to be made during the loan term. A borrower must pay the entire loan back at the end of two weeks.
- Payday lenders earn most of their profits
by making multiple loans to cash-strapped borrowers. 90% of the payday
industry's revenue growth comes from making more and larger loans to the
- Payday lenders encourage consumers to borrow the maximum allowed, regardless of their credit history. If the borrower can't repay the loan, the lender collects multiple renewal fees.
- Consumers who cannot make good on a deferred (post-dated) check covering a payday loan may be assessed multiple late fees and NSF check charges or fear criminal prosecution for writing a "bad check."
- This debt trap can lead you into paying back high interest on payday loans and not being able to pay your mortgage. Which is more important to you and your family?
Some information above was taken from http://www.responsiblelending.org/payday-lending/tools-resources/ninesigns.html