There are tons of ways to borrow money, but one type of loan that’s exploding in popularity (especially online) is the installment loan. On paper they look like an alternative to payday loans, they seem like they’re cheaper and much more flexible, but in reality they share many similarities. This post will help explain some of the finer details with these loans so that you’re able to use them safely.
If You Don’t Have Bad Credit…
These loans are not for you! Seriously. They are designed to be an expensive form of short term credit, which means that you will get a much better rate at your bank or local credit union. Installment loans are so expensive because they lend to high risk borrowers, and the extra cost helps offset the resources that go into collections.
Even if you don’t have great credit still check with your bank. The savings you’ll get are insane and worth the extra time that you’ll spend.
How Much Is It Going To Cost?
You’re going to get offered a much lower interest rate than a payday loan, but much higher than a bank loan. This might seem like it’s awesome, but when you do the math the total amount that you pay on the loan is much higher than a payday loan. Even at half of maximum interest rate, you’re going to be paying 3-4x the loan principal once everything is said and done. Each lender will set their own interest rate, so be sure to check out all of your options before signing on the dotted (digital) line.
So Are They Payday Loans Or Not?
The vague answer is yes and no. Yes because the lender’s practices are regulated by payday loan legislature. This includes the maximum they can lend and interest rates. The lender will also likely offer payday loans in tandem with installment loans.
However, the biggest difference that makes them not payday loans is that you won’t pay it back on your next payday. You’re going to have anywhere from one to twelve months to get it repaid. One thing that many people don’t understand is that you do make biweekly payments on your loan on each payday until the end of the term.
Good Idea, Or Not?
Obviously, each person’s situation is different. If you need a loan quickly that you can make payments on for several months, and are in a financial position that you can afford to make these payments, go for it. Just please understand that there are other ways to get a loan that aren’t nearly as expensive, and all of those methods should be researched before making any decisions.
Geoff W. is a finance blogger specializing is alternative loans. If you’re interested in a more in depth explanation of how this all works, check out the article “9 Things You Need To Know About Online Installment Loans“.