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Dangerous Ways to Finance Your Investments

April 16, 2013 by Sally

When you are preparing to make a purchase, there are several ways to  secure funds. Not all of these are ideal for investment purchases. In  fact, many of them are very dangerous when purchasing an investment.  Here are the top five worst ways you can finance an investment.

1. Payday Loans

Payday loans are a very high interest loan that offers immediate cash. The amount you have available will depend on your current income. Most of the time the loan amounts are between 100 and 5000 dollars.  While they can be tempting because of their immediate approval and no  credit check, it is important to remember that very few offer payment plans. This means that not only will you have to have the full amount by the next paycheck; you will also have to have the interest amount as well. This type of financing is set up so people will go under if they  get behind.

2. Title Loans

For the same reason payday loans are dangerous, title loans are as  well. They have a high interest rate and you are putting your  transportation at risk. That is because to secure a title loan, you must  present the title to your vehicle. If you do not repay the loan on  time, or miss a payment, they have the right to take your vehicle in  exchange.

3. Credit Cards

Credit cards are nice for emergency purchases, or to use for  regulating bills. They are not ideal for financing an investment, and  are often a dangerous idea. Even if your credit card does not have a  high interest rate, you need to pay the entire amount off by the next  billing date if you do not want to see the interest rate cause your  amount to be higher. They can be difficult, sometimes impossible, to  completely pay off. Credit cards should be reserved for an emergency  purchase, or filling your gas tank. Smaller amounts are easier to pay  off when the bill comes.

4. Home Equity Loan

Home equity loans are similar to credit cards, except you could lose  your home. These loans should be reserved only for home improvements. If  you use the money to finance an investment, and then you cannot make  your payments because the amount is so high, the bank has the right to  take your home. The prospect of living homeless is a high price to pay  for an investment.

5. Personal Loan

Personal loans are loans that are not secured. This means that the  interest rate is extremely high, and they may take a long time to pay  off. When you are purchasing an investment, it pays to have collateral  so you can obtain a secured loan. By the time you have paid off a  personal loan, you may have spent twice as much money.

Investments can offer you collateral in the future, but if you choose  to go with one of these five methods to finance them, you may not make  it to the future. It is important to look at the interest rate and the  length of time involved when you select a method of financing.

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