In recent years, more and more people have been turning to domestic helper loans as an alternative form of financing. However, these loans are not without their drawbacks.
Here are some reasons why you might want to think twice before taking out a domestic helper loan:
The employer pays the monthly loan installments.
If you are an employer, it is important to note that the monthly installments will still be due regardless of whether or not your helper remains employed with you.
If they leave before the contract ends, the employer will have to pay them anyway.
On the other hand, if you do want to shoulder this responsibility yourself, pass it on to one of your workers (who may not have enough money).
Employment contracts may not be legally binding.
The contract may not be legally binding. In many countries, domestic helper loans are illegal or considered a form of bonded labor. This means that they do not have any legal standing in court.
If you file a complaint against your employer and the case goes to trial, the judge can dismiss your claim because there is no proof that you agreed to repay these loans.
The contract may be signed by only one party (you). For example, Your employer may claim that he never agreed to any money loaned but signed an employment contract stating otherwise because he feared losing his job.
Since he didn’t sign as well, there will be no way for him to prove this point unless someone else witnessed him signing it.
High interest rates
The most obvious disadvantage of getting this type of loan is that interest rates can be very high; they often start at 20% APR (annual percentage rate) and go up depending on how risky lenders consider your application based on factors like your credit score and income level.
If you’re unable to repay these loans on time or fall into default status with them, the penalties do not stop there:
They continue until the liability is cleared up through repayment plans such as those offered by debt consolidation agencies like Freedom Debt Relief Services Inc.
Result in Unnecessary Debt
One of the biggest disadvantages of domestic helper loans is that they can result in unnecessary debt.
If you cannot pay off your loan in time and do not have a plan, then it’s possible that the loan provider will charge interest on top of the borrowed amount.
Additionally, if you borrow money from a financial institution and fail to pay off the loan within its stipulated period, and if there are late fees, these charges could negatively affect your credit score.
How much you can borrow depends on your credit rating.
You can only borrow as much as your credit card limit allows, so it’s worth checking with your bank to see how much they’ll lend you.
If they refuse your application, it’s worth considering getting a joint account with another family member or a friend with better credit history than yours.
This means they will be responsible for paying back the money if anything goes wrong with the transaction.
You need to have a job to get approved for this loan.
If you do not have an income, you will not be able to use the money for other purposes since you will only be able to use it for paying off your helper’s salary.
You may also find it difficult to get approved by banks if they know that you do not have an income or if they know that your salary is not enough to pay off all your bills
A lot of paperwork is required.
This type of loan requires that you go through a lot of paperwork, which may be time-consuming and frustrating.
If you’re in a hurry when applying for one but don’t have time to complete everything accurately right away, there is no way around it except by doing so yourself or hiring someone else who can help with applications.
Considering a domestic helper loan, weighing the pros and cons is important. These loans can be beneficial for people in need of cash but also have some disadvantages.
If you decide this is the right option for your situation, then go ahead and start the application process. You’ll be able to find plenty more information online.