Personal Loans 101
(Family Features) If you happen to find yourself in a tight spot, borrowing money can help set you back on the right path. However, doing so without a full understanding of the facts can hinder your finances in the future.
“When faced with a financial emergency, most people don’t think through how borrowing money might affect them down the line,” said Susie Irvine, president and CEO, American Financial Services Association Education Foundation. “With so many options available, it’s relatively easy to get a loan, but the impact on your credit and what it actually costs you over time can vary a great deal.”
The two most common types of small-dollar borrowing are traditional installment loans and payday loans. Knowing the ins and outs of each type of loan and how they work can help you make the best decision for your financial situation.
Traditional installment loans are one of the oldest forms of finance transactions and provide credit to individuals and families who need access to credit to meet an immediate need, such as vehicle repairs, household appliances or medical expenses. Averaging around $1,500, traditional installment loans are “plain vanilla” loans with transparent, easy-to-understand repayment terms, due dates and payment amounts – which usually average $120 per month over a term of about 15 months. With regular, manageable payments of principal and interest, the borrower has a clear roadmap out of debt. Best of all, traditional installment lenders report payment activity to credit bureaus, improving a borrower’s credit score when payments are made on time.
Payday loans are repaid in a single balloon payment at the end of the loan period. This payment is usually due in less than 30 days and frequently the term is as short as 14 days. Payday lenders do not assess ability to repay, relying instead on a postdated check or similar access to a borrower’s bank account as assurance the loan will be repaid. If a borrower cannot afford to repay a payday loan in full when it comes due, they are left with no option but to refinance the entire balance of the initial loan. Although payday loans may appear to provide a quick and easy solution, this single, lump-sum payment can lead to significant problems for the borrower. Payday lenders have also been sanctioned in many states, and at the federal level, for abusive practices.
Is an Installment Loan Right for You?
Keys to Credit Success
Budget your money. Provide your monthly spending plan when you meet with creditors. It will help them make a responsible decision about the amount of credit you can afford.
Don’t overextend. Be sure you can pay back the loan. Don’t bite off more than you can chew.
Get personal. If possible, borrow from someone you actually can see and talk to in person. Get comfortable with the lender, and let the lender get comfortable with you.
Shop. Compare costs. Shop for credit like you would shop for anything else.
Beware of “now or never” offers. If it’s a good deal, it will probably still be there after you’ve had time to think about it. Don’t be pressured into making a quick decision.
Ask questions. Don’t sign on the line until all your questions have been answered.
Read the contract. Don’t sign a contract that you don’t understand or has any blanks. A signed contract with blanks can be completed as anyone wishes and it will be legally binding.
Keep your contract in a safe place. It’s important to keep all paperwork relating to your credit obligations. If questions come up later, you’ll have your agreement in writing.
Additional products are not required to get a consumer loan. Optional products that may be offered for purchase with your loan include motor club membership, term insurance or warranties.
To learn more about affordable credit options that are available to help you better manage your money, visit installmentloanswork.com.
Photo courtesy of Getty Images (couple with laptop and paperwork)
Interested in Publishing on The Business IDEA?
Send your query to the Publisher today!
Interested in Publishing on The Business Idea?
Send your query to the Publisher today!
Get this business content for your website with our RSS Feed below!