Online Installment Loans: What You Need to Know
As consumers become increasingly aware of the dangers of high-interest payday loans and car title loans, a new type of loan is quickly gaining popularity. Sub-prime borrowers are now flocking to online installment loans. At first glance, they may seem like a more manageable option, since the loans are designed to be paid back over time, rather than in one lump sum. This eliminates the renewal / fee cycle that can turn payday and car title loans into a vortex of debt. However, when you look at them closely, online installment loans are still a risky option. Let’s find out why:
Online Installment Loans Target Vulnerable Consumers
These loans are directed at consumers with fair-to-bad credit. This means they may already be struggling with hard-to-manage debt loads. And since consumers may be able to borrow up to $10,000 or more, an online installment loan can easily turn someone’s finances upside down.
Interest Rates Can Reach Triple Digits
Although rates vary widely by lender and from state-to-state, interest rates of 155% for online installment loans are not unheard of. Even in California, where the governor recently passed a law capping interest rates on loans of up to $10,000 at 36%, consumers may spend more than a year making payments that solely cover interest before they ever begin paying off the principal.
There are Better Options
Trying to borrow money with less-than-ideal credit can be challenging, which is why these loans are becoming so popular. However, there are other options to consider. Try getting a small personal loan at a local credit union or local bank, rather than a large, national bank. If you have a credit card with a lower interest rate than the rate of the loan, use that to charge the purchase instead. Just be sure to make a plan to pay off the charge as quickly as possible to avoid accruing too much interest.
If you’re planning on taking out an online installment loan to help pay down debt, try credit counseling first. It’s our free service that analyzes your income, expenses and debt and gives you a personalized budget with recommendations for getting out of debt.
Their Future Is Uncertain
From a regulatory standpoint, online installment loans are flying under the radar … for now. As more consumers begin to take on these unmanageable debts and default on these loans, there’s a good chance online installment loans will come under the same scrutiny as payday loans and other high-interest lending products.