What are some disadvantages of small cash loans?


Quick Answer

Disadvantages of small cash loans include high financial charges, offering a specified or limited amount of money, and the difficulty of obtaining certain types, especially if they are unsecured, state Forbes and About.com. Examples of these loans include payday loans, small personal loans and line of credit loans.

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Full Answer

Payday loans are small cash loans that the borrowers have to repay with their next paychecks, notes About.com. The lenders lend about $500 or less, and these loans carry financial charges of between $10 and $20 for every $100 borrowed, according to CNNMoney. Although payday loans are easy to get, many borrowers find themselves unable to repay the borrowed amount plus the charges when the loan comes due. The borrowers have to roll over this debt, creating additional fees with time, explains About.com.

A line of credit loan is a specified amount of cash that the borrower can access as required and then repay within a short specified period, states Forbes. The bank has first to approve the borrower, and it starts charging the interest as soon as a person borrows the money.

Since unsecured personal loans carry no collateral to guarantee the loan, they pose risks to the lenders, making the leaders charge higher interest rates than they do for secured loans, explains About.com. The borrower’s credit score is a major determinant in securing these loans, making it a challenge for people with bad credit to have their loans approved. Examples of these loans include student loans, signature loans and credit cards.

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