Why Credit Installment Loans Are Not Always The Answer
If you’re looking for a solution to make a large purchase or get some money upfront, you might have considered a credit installment loan.
There are many credit installment lenders out there with attractive offers. Get approved instantly. No credit check required. Low monthly payments.
Credit installment loans can be an easy way to get a loan in a pinch.
Many people use installment loans to pay for emergency expenses, home renovations, or to finance large purchases such as a car or new furniture for the home.
While they are an easy way to borrow money, the same loans can quickly become a nightmare if you do not borrow responsibly.
How do Credit Installment Loans Work?
Credit installment loans allow you to borrow money upfront and then you pay it back over a series of payments, sometimes weekly, biweekly or monthly.
While payday loans are a popular way to borrow money for the short-term, credit installment loans are usually longer-term, often months or even a few years.
These loans are usually unsecured and are easier to get than a bank loan.
Why are Credit Installment loans popular?
Quick and Convenient
Credit installment loans are often an easy option to borrow money. Many lenders provide same-day approval and provide funds instantly. This convenience can be tempting if you are in a bind and need cash right away.
No credit checks
When borrowing money, a low credit score might be a hurdle. However, some installment credit lenders provide loans without a credit check, which can be appealing to those with bad credit scores.
Instead, lenders may rely on other factors such as proof of income and current employment.
Longer repayment period
Credit installment loan terms range from a few months to a couple of years. This can be attractive compared to other types of loans, such as payday loans, where you have to pay back the money within a week or two.
Unsecured loans
Many credit installment loans do not require collateral, which allows you to borrow without putting up your assets on the line.
The Downside of Credit Installment Loans
Credit installment loans are not as rosy as they might seem. They can be an attractive way to borrow money, but they come with many downsides.
High-Interest Rate
These types of loans are very expensive. Many lenders don’t require credit checks, nor do they need any collateral.
Lenders will charge a higher interest rate to offset the additional risk. Canada’s legal maximum interest rate is 60%, and it is common for credit installment lenders to charge between 30%-50%.
This high-interest rate along with repayment terms can be costly over time. You might find yourself paying back double what you borrowed.
Expensive Fees and Penalties
Many installment loan providers also charge additional origination fees, administration fees, and costly penalties for late payments.
These can quickly add up and make the loan more expensive than you anticipate.
Pressure to refinance and borrow additional funds
Once you start paying your loans, the lender may contact you to borrow more money and refinance your loan. The more money you borrow, the more expensive it becomes to make your payments, and it can be easy to get trapped in a cycle of debt.
Impact your credit score
It can be expensive to keep up with large loan payments on high-interest rate loans. Missed payments and higher loan balances can be detrimental to your credit score, and you might be even worse off than when you first started.
How to Avoid Bad Credit Installment Loans
While credit installment loans may seem like an attractive option, it is crucial to understand the terms of any loan and find the best option for your financial situation.
Read the fine print.
If you are shopping for an installment loan, make sure to understand the fine print – including the interest rate, additional fees, and any penalties for late payments.
It is also essential to know your rights as a consumer of financial loans, so you do not fall prey to potential predatory lending practices.
Borrow Responsibly
Many installment loan providers may offer attractive deals to borrow more money. New loans can start a dangerous cycle of debt. Don’t rely on new installment loans to pay off old debt.
If you need additional funds, look for more viable options for the long term, such as a bank loan or other options with lower interest rates.
Look for long-term solutions.
Installment loans can be tempting, especially if you have bad credit and other debt. Taking on the high-interest debt will not help you solve your existing financial problems.
Seek financial advice from professionals like debt experts to help you explore your options, such as debt consolidation or consumer proposal.
Credit installment loans are only a short-term solution.
Credit installment loans can be an attractive short-term loan option in many cases, especially if you are looking to purchase a high-value item or need funds upfront instantly.
However, they can be a costly solution in the long term. It is vital to understand the terms of your credit installment and make sure that you are not relying on them over a long time.
If you are looking for a way out of debt, EmpireOne Credit can help! We can help you explore the best options to get out of debt, whether debt consolidation, consumer proposal or filing for bankruptcy. Contact us for a free consultation.