At some point in our lives, we find ourselves in a situation where we need cash right now. Whether it’s a medical emergency, an accident, or something major broke down in your house, having access to money right away is a necessity for many. That is why many look to online installment loans as a way to dig them out of any situation.
At first glance, an online installment loan compared to other loan types doesn’t seem like much of a difference. However, as you dive a bit deeper into them, you find out that they have a lot of positives, but also downsides if not dealt with properly.
We created the following guide about online installment loans to help you decided if it’s the right option for your situation.
What is an Online Installment Loan?
Simply put, an online installment loan is a small loan you take out and payback in a series of payments or installments. Typically, you would pay back the loan in a more short time frame (a few months or years). Traditional loans often have the recipient pay the loan back in multiple years, even decades.
Online installment loans are not to be confused with payday loans, which are short-term loans that you pay back upon your next paycheque. Installment loans allow you to negotiate a term for how long you have and how many installments to pay back the loan completely.
Another key difference with an online installment loan is that you are not guaranteed to receive the funds. You still have to submit an application and wait for approval of the loan. Although if you have bad credit, you can still get an installment loan, there are factors considered to ensure that the person taking out the loan will pay it back.
Online installment loans are one of the most popular loan options available, with a good chunk of individuals around the country using them at least once in their lives. Especially as the economy takes a hit, online installment loans provide that cushion to pay bills each month.
Should You Get an Online Installment Loan?
Although these loans provide excellent support in emergencies, that doesn’t mean everyone should use them at any time. Online installment loans are a loan, which means you’re borrowing the money from someone else. You have to pay it back in full. If you cannot or decide not to pay it back, a collection agency may take over to gather the money.
Having too many loans that you cannot pay back can be detrimental to your credit score. Having a bad credit score will make it harder to borrow money of any sort. Also, it can lead you down the road of bankruptcy if loans and bills continue to pile up.
Before you apply for an online installment loan, ask yourself a few questions first. What is the reason for the loan? Is it legitimate, or is it for something luxurious that should wait until you can afford it?
Will I be able to pay back the loan in the set timeframe? Loans aren’t free money. You have to pay it back. So, it’s important to budget the payments to see if you can afford the additional monthly expense.
Manage Your Loans to Keep You Afloat
If you decide to get a loan, whether it be an online installment loan or something bigger, we have a few tips that will help you manage the payment. After you decide that the reason for the loan is legitimate and the money is necessary (you’re not using the loan to go on a vacation around the world), the following four tips will help keep you on track with your payments and prevent more problems down the road.
Finance Education is Never a Bad Thing
First, learn more about money-saving tips and how to manage your finances. In some circumstances (buying a house or a vehicle), there is no way around a loan. However, if you need installment loans frequently to make ends meet or for emergencies, it could be a sign to educate yourself some more on controlling your finances.
Speak with financial experts, take online classes about money, or read up on different blogs that provide information on controlling your finances. The more you know, the better you can set yourself up for success in the future.
Build an Emergency Fund
Tying into the first point above, an emergency fund is another way to protect yourself and your finances, and prevent having to borrow money. Having an emergency fund can kick in for unexpected expenses like medical bills, home repairs, major car fixes, sudden unemployment, or anything along those lines.
Even if you just start setting aside money know into an emergency fund, you’ll already have cash ready to help with an unexpected expense. The goal to reach, though, is to have around half a year worth of expenses saved up.
Never Miss a Payment
One of the most significant tips around loans is never to miss a payment. Even if you have a difficult month and struggle to find the money to make this month’s payment, avoid deferring. Missing payments can negatively affect your credit score, and you’ll end up with late fees slapped onto our loan payment.
Instead, speak with your loan provider. Many will help you negotiate a different payment schedule and help you out, so you don’t have to miss a payment.
Pay More Than the Minimum
Once you have your loan and the payment terms, the lender will provide you with a minimum payment option. Each installment has to be at least the minimum dollar amount to pay the loan back on time. However, it’s in your best interest to pay more.
Loans have interest rates that end up costing you more the longer you have the loan. Paying the minimum is basically only paying the incurred interest with only a fraction going to the principal amount. By adding a bit more to each payment, you’re tackling the principal loan, which means you can pay back the amount quicker than planned.
Online installment loans provide an excellent option for many families who need money right away. Emergencies and unexpected expenses can happen at any time. Even if you have your emergency fund, sometimes it’s not enough. These loans can provide financial relief to get you through any difficult times.