The online installment loans are rapidly gaining popularity among subprime borrowers. They are a more convenient option, as one has to repay the loan over a period, rather than in a single lump-sum. However, an online installment loan with bad credit is a risky option.
About 40% of Americans struggle to repay their installment loans, owing to their lack of awareness. Thus, one must watch out for the below-mentioned traps and make sure to avoid them while choosing such loans.
Not Checking Your Credit Score
Checking your credit score before taking an approved loan is always a good practice. It will help you monitor your data accuracy and ways to improve your credit rating.
In case you fail to verify your inconsistent credit rating before a loan application, there could be two consequences. Either your application gets rejected, or you might end up with a loan at increased interest rates.
On the other hand, some lenders advertise loans that do not demand a credit check. It means the lender does not have information about your financial history and cannot gauge your capacity to repay the loan.
Such predatory lenders will often charge you a relatively higher annual percentage rate to compensate for the borrowers who inevitably fail to repay their loan on time.
Hence, always check and fix your credit score for any inaccuracy before applying for a loan. Also, avoid lenders who avail you loans super easily.
While considering a loan, you might pay attention only to the monthly repayment numbers. Even the loans at low-interest rates may turn out to be expensive if you do not consider additional charges like a prepayment penalty, origination, and late fees.
At times, you would want to close your loan before the repayment period. In such cases, some lenders will charge you the prepayment penalty fee.
Second, you need to pay upfront an origination fee to the lender, and the costs vary with lenders. Also, you will be charged a late fee, in case you make delays in loan repayments.
Make sure you confirm these hidden charges, to avoid getting overcharged for your online installment loan with bad credit.
Long Repayment Periods
Some lenders propose smaller loans with high APRs and extremely long repayment periods. In such scenarios, you can end up paying more interest and fees than the original amount you borrowed.
Avoid going for such lenders who pitch for excessively long repayment periods.
Overlooking High-Interest Rates
According to financial consultants, the APR on loan should not exceed 36%. Multiple federal agencies and states decide this rate. However, some predatory lenders charge APR at three-digit rates.
It’s again a trap, where the lender does not mention the APR range explicitly on their website. Avoid availing loans from such lenders.
Specific lenders suggest insurance options with a notion to protect you. The larger picture is that they do so to protect themselves, in case something happens to you and loan repayments become an issue.
These are not a part of APR. To summarize, analyze every aspect of the online installment loans, so that you choose the best option that suits your loan repayment capacity.