The Pitfalls of Fast Online Loans 

By Edris Tucker, AFC® 

Financial Coaching Program Manager 

CommunityWorks 

 It’s tempting when you’re running short on cash and feel certain your bank or credit union won’t understand your situation, to let the “fast cash now!” ads pull hard at your resolve to stay on track financially. 

Predatory loans were once hidden in the shadows. Stories about loan sharks carrying baseball bats would chill and hinder any consideration to lose your kneecaps because of money troubles. But today, this is mainstream finance in America; some are even public on the stock exchange. The reputational risk that once deterred lenders hasn’t stopped people from building careers on the backs of financially vulnerable customers. 

The shift in shame factors, however, doesn’t make these loans any safer. 

Predatory lending is no longer limited to payday loans. Many installment loans—and even loans from “friendly” private lenders—can carry dangerous fine print. Longevity doesn’t equal legitimacy, and online lenders may be financing far more than you realize. Even old-school mobsters never dreamed of the legally permissible rates that exist today. 

The bottom line: not all money is good money. The source of a loan may not be your savior, and sometimes it’s better to avoid borrowing altogether than to pull from your financial future. If a bank or credit union says no, consider it valuable feedback—not punishment. Sometimes “no” is meant to protect you from a harmful decision. 

Key Pitfalls of Fast Online Loans 

• Astronomical Interest Rates and Fees. You may have to pay back many times over the amount you borrowed over the life of the loan. High rates mean little of your payment is extinguishing the debt.  

• A Debt Cycle by Design. Every time they start over, you start again paying the most in interest and the least towards the principle amount you owe. The little bit of “extra” money you get just puts you deeper in debt. 

• Higher-Than-Normal Payments. The time value of money means the faster the payback the higher annual percentage rate. Even if the loan is stretched out over time, at a high rate, you could pay thousands more. (I’ve seen a 2,200 loan that would have stretched into a repayment of over $12k!) 

• Negative Impact on Credit. Finance company debt will ding your score, even if you pay it back on time. Because it’s a riskier option it can be factored into calculating your score. 

• Hidden fees and Unauthorized Withdrawals. You may think you didn’t authorize them but in the fine print you may have given them license to draft extra payments when you least expect it. One example is a Wage Assignment hidden in the paperwork. If they don’t receive a payment, they can take the contract to your employer and force them to swipe your paycheck before you get it! Without going to court! 

• Psychological Stress.= If you were stressed enough to get the loan, the relief you felt may have been short-lived, compounding stress upon stress as you try to juggle yet another hefty bill. 

• Dependency. Feeling like you have no other choice can leave you stuck and stifled. Which means the next set of paperwork you sign without looking can carry even deadlier bombs in the terms and conditions.  

• A Profitless Pit. As a business owner, the merchant account that allows you to accept credit cards as payment can be confiscated. Chunks of your daily receipts to pay back the principle plus fees as fast as possible could make you close the doors! 

 But there are options. If you’re struggling with making personal financial decisions that line up with your values, hopes, and dreams, those struggles will likely carry over to your business. We have a resource that can help you make better financial decisions that help bridge the gap between today’s realities and your big business dreams: it’s called a Financial Wellness Assessment.  You can access the portal to schedule your appointment below with the link labeled “Get Started.” 

You can build personal and business credit for your business, plus get a 50% return on your savings with a Business Credit Builder Secured Savings Loan. Click to find out more information, check your eligibility, and apply, or schedule a free conversation if you aren’t yet sure it’s for you.