3 Worst Ways to Borrow Money

Payday loan lenders don’t check your credit, and they give you money right away; what’s not to like about that? Terrible interest rates, for a start — unlike the credit card companies that charge you 15 percent to 30 percent annual interest, payday loan operators tack on an average annual rate of 322 percent! Of course, they claim you won’t actually pay that much because their loans are short-term. However, they bank on you not being able to pay your loan back in full on your next payday and rolling it over for another few weeks. The reason you see so many payday loan outlets is because the owners are making a fortune — the typical payday borrower is in debt to these places 200 days of every year.

Providing even quicker cash than payday lenders, pawn shops can be appealing because nobody comes after you if you can’t pay back your loan. Instead, you can simply let the deadline (usually 90 days) for retrieving your item expire and lose ownership of the object you pawned. If you do pick up your item, you’ll pay almost the same amount of money in fees and interest that you would to a payday lender, and if you don’t go back for it, you’ll walk away with less than half of what your object was worth. Either way, you lose. Selling a possession outright can make sense if you’re in a tight spot, but you can get far better money for it if you post it on Craigslist or eBay.

The interest rate on credit card cash advances is 10 percent to 15 percent higher than that of direct credit purchases, and it starts to accumulate from the moment the funds land in your hand. Furthermore, your card issuer charges extra fees for turning your credit into cash — usually between 3 percent and 5 percent of the amount you borrow. With rates lower than those of pawn shops and payday lenders, credit card cash advances are probably the lesser of these evils; however, they are still one of the three worst ways to borrow money.