Essential Tips for Choosing and Managing Installment Loans
This article covers essential tips for selecting and managing installment loans, emphasizing the importance of research, understanding interest rates, avoiding hidden fees, and choosing the shortest repayment term. It warns against aggressive marketing tactics and highlights the value of existing banking relationships, offering practical advice for borrowers to make informed financial decisions and avoid scams.
Best Practices and Pitfalls of Taking Out Installment Loans
An installment loan, often called a personal loan, is widely available through numerous reputable lenders, including both traditional banks and smaller lenders. Borrowers should carefully select a loan that fits their financial needs while avoiding scams and misleading marketing tactics.
Installment loans are accessible to borrowers with all credit backgrounds, not just those with poor credit. Be cautious of:
Unsolicited aggressive marketing by subprime lenders claiming low risk
Promises of lower APRs that may be misleading
Credit insurance packaged with the loan ('piggybacking')
Attractive renewal offers that extend the loan period
Stay informed and smart as a borrower:
- Use the term 'personal loans' when researching options, as 'installment loans' is sometimes associated with predatory lending practices.
- Opt for the lowest fixed interest rate available. Remember, if market rates decrease, your rate may remain unchanged if it’s fixed.
- Avoid conditions that could be hard to meet, especially for secured installment loans. Be aware of repayment terms to prevent losing collateral in case of default.
- Watch out for hidden fees and added costs like credit insurance, which can inflate your repayment amount. Comparing multiple lenders helps find the most affordable options.
- Evaluate all options thoroughly before proceeding. Banks, credit unions, online lenders, and no-credit-check lenders all provide installment loans. Preferably, choose a bank you already have an account with, as existing relationships may offer better rates. If going online, be aware that APRs might be higher.
- If you have excellent credit and a favorable credit card rate, it might be advantageous to use your credit card for expenses instead of an installment loan. Otherwise, applying for an installment loan can provide predictable monthly payments.
- Select the shortest repayment period possible. While longer terms reduce monthly payments, they increase the total interest paid over the life of the loan.
- Beware of lenders that contact you unsolicited via calls, emails, or advertisements. Reputable lenders typically do not use such aggressive outreach methods.
