Installment loans and payday loans are a legal financial service, though you may have heard horror stories about them. We’re going to share tips for avoiding problems with these loans so that you can get money now without worrying about it later.
Do Your Research
Don’t just sign up for the first website that comes up. And don’t think that the logos on the website are enough to prove that it is safe. Check the Better Business Bureau and customer review sites on places other than their testimonials page.
You can get easy installment loans online. However, too many scammers set up a fake landing page pretending to be such. Once they have your driver’s license and bank account information, they steal your identity and drain your bank account.
Only work with lenders that are licensed, insured and demonstrate reasonable IT security on their website. It doesn’t matter if they’re legitimate if they don’t have secure HTTPS on their website.
Suppose you’ve created a list of legitimate payday lenders or installment lenders. You know they aren’t fronts for identity thieves and they take IT security serious. You’ve verified they do business with people in your state. Now check to see if they’ll loan you the amount of money that you want.
There’s no point in sending your personal documentation to someone who can only loan you half the amount you need, and you can’t afford the fees charged by two different installment lenders.
As you do your research, create a list of lenders who meet your basic criteria. Then you won’t waste time doing a detailed comparison between those who aren’t a match with your needs.
You probably did detailed research before buying a car. You may have visited a dozen lots and test drove as many cars. Yet most people take the first car loan they are offered, whether it is from their bank or the dealership.
This mistake costs them quite a bit, since they didn’t shop around for a lower interest rate or lower fees. They focused on supposed freebies like an extended warranty or a slightly higher trade-in amount. They end up paying thousands of dollars more than necessary over the life of the loan.
When it comes to installment loans, the price of making a mistake isn’t as high as it is with a car loan or home loan, but it can turn into thousands of dollars if gotcha fees dramatically inflate the loan balance. This often traps people into an endless treadmill of renewed loans they can never get rid of. Making matters worse are how many get nasty collection calls that never stop.
Do your research regarding lenders. How much do they charge in interest and fees? How does that relate to other lenders? How do they treat their customers? Are they respectful and courteous? Or do they act like they’re doing you a favor by letting you come in and talk to them? Do they harass you for full payment of the loan or throw in extra fees that force you to pay more than expected?
You can’t afford not to do your research regarding lenders. While you may be pressed for time and money, ten or twenty minutes of research to find the best rates on an installment loan with a reputable company is worth it in the long run.
Also determine what paperwork they need from you when you apply for the loan. Don’t send a copy of your Social Security card to a company that just needs your driver’s license, and make sure you have all the documentation required to qualify for the loan before you apply.
Do a Budget
There are several ways a budget can save you from the worst case scenarios. Determine how much you actually need, whether it is for the car repairs that came up or medical bills. Don’t borrow 1000 dollars when you really need 1300. You may end up taking out more and more expensive loans to cover the difference and fall short when the next payment is due.
The other reason you need to do a budget is to ensure that you can pay the payments on the installment loan. Make certain you don’t pay the rent the same day the deposited paycheck will be swept by the lender.
Don’t try to rely on check floating. Ensure that there is enough money in the account to cover the loan payment, bills, fees and account minimums. You’re the one on the hook if there is an account overdraft fee or bounced check fee.
Start cutting expenses now like canceling subscriptions and eliminating luxuries withheld from your paycheck like stock purchases and accidental death coverage to ensure you can pay the bills you have coming up.
You also need to create a budget to plan for the repayment of the entire loan. If you can’t cover the 1000 dollars borrowed plus interest and fees – something that could hit 1200 or 1500 dollars depending on the lender – you’ll have to roll over part of the loan. This increases the fees and interest you’ll have to pay over the life of the loan. It is these follow-up fees and ongoing interest that build up, and they can cause you to pay far more than you originally borrowed to the lender over the life of the loan.
Once you’ve paid off this debt, get on a budget so you can save up a thousand dollars in an emergency fund. Then you’re less likely to need to go into debt in the future for a minor emergency. And you won’t have to borrow as much if you do need to leverage debt to pay the bills.
Don’t forget to work on paying down other loans, as well. Pay off your title loans and small credit card bills. This takes proactive planning and sacrifice, but you’ll end up in a more secure position. Then the only installment loans you take out are layaway or saving up for future big purchases. Then you won’t have to rely on debt to cover major expenses.
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Andrea Schmidt is a staff writer for Wealthy Turtle. She’s a stay at home mom who loves to write about paying down her family’s debt, living on a budget, and exploring new side hustles to earn extra money.