A installment loan also referred to as Salary advance, payroll loan, small-dollar loan, cash advance or short-term loan is a small loan facility advanced to salaried clients and it usually falls due on the borrower’s next installment. With the prevailing world economic situation and the rising cost of living use of installment loans is inevitable due to some emergencies that arise in the course of the month. Installment loans are basically meant to fund emergencies or unexpected expenses with a low budget that come up before the installment.
Features of Installment Loans
- It’s a short-term loan
- Usually available in small amounts
- They fall due on the next borrower’s installment
- The borrower must have a regular income
- The application process is fast and simple
- Require little or no paperwork
- Requires little or no credit checks
- Does not require collateral
- It involves salary verification through pay slip or bank statement
- Does not require a cosigner or a guarantor
Factors to consider when applying for installment loans
Installment loans can be very tempting and very dangerous if misusedsince they affect your liquidity position. It is therefore very important to consider the following factors before applying for ainstallment loan.
1. Purpose of the Loan
The first thing that should come to your mind before applying for any loan should be the purpose for which the loan is intended for. If the need is not very urgent you can consider other options since installment loan is believed to beexpensive as compared to installment loans, but if the need is very urgent it is advisable to apply forainstallment loan that is just enough to avoid wastage that may affect your liquidity position.
2. Turnaround time
Installmentloan usually has a very short turnaround time although actual time differs as per lender. The time may range between hours to a day depending on the lender. It is important to compare the turnaround time of different lenders depending on your urgency. If your need is very urgent it is advisable to look for the lender with the shortest turnaround time.
3. Customer Service
Despite the urgency in the need of a financier, it is important to choose a lender who will handle your need with a lot of respect, courtesy and willing and available to answer all the questions that you may be having.
4. Renewing or roll over a Loan
Some lenders are flexible and allow rolling over or renewing the facility. If you are financially constrained you can consider such lenders since their terms are favorable.
5. Loan Term
This refers to the duration of the loan. Besides the fact that installment loan is a short-term facility, lenders differ on the term that they offer but it depends on your pay structure, for instance, if you are paid monthly they advance a loan payable by the end of the month, if you are paid fortnightly they can split the amount to be recovered in two fortnights but this should be outlined in the loan offer letter.
6. Terms and Conditions
Terms and conditions for sanctioning loans vary from one lender to the other. It is important to skim over all clauses carefully since some may not be expressly communicated to you at the time of application. Ensure you are aware of all associated charges like processing fee, excise duty, prepayment or late payment fee etc
7. Interest Rates
An interest rate is the cost of a loan and it depends on the lender. Some lenders offer fixed interest rates while others offer variable interest rates. As compared to variable interest rate fixed rates loans are usually not expensive.
Before applying for any loan, it is important to take into consideration the lenders requirement for eligibility. For instance, some lenders may require that the applicantprovide Identification documents, be a citizen of the country where the lender is domiciled or be above eighteen years of age.
9. Non-payment Penalties
These are charges that a loan attracts upon default. When applying for ainstallment loan it is important to consider the consequences of nonpayment or early payment. Some loans attract hefty penalties and it is important to avoid them since they may leave you in a financial crisis.
10. Existing Loan Amount
In the case of the multiple borrowers, it is important to consider the number and volume of the existing loans and the ability to meet the monthly installments. If the burden on monthly installment is too high it is advisable to avoid the emergency facilities at all cost unless it’s inevitable.
Pros and cons of installment loans
All types of loans have pros and cons and it is therefore, advisable that you weigh them all so as to come up with an informed decision.
Pros of Installment Loans
- You only need a steady income
- It is easy to obtain
- It is fast and convenient
- Available to people with poor credit
Cons of Installment Loans
- They are very expensive
- Do not offer a long-term financial solution
- Easy to fall into a vicious cycle
- Have a high risk of being stuck in bad debt