Online direct installment loan lenders expand essential financial options beyond the typical short-term payday cash advances.
Some 12 million Americans use payday loans each year to help them cover unexpected emergency expenses. Provided you research how to borrow what you need and budget for their costs, payday loans may be a helpful stopgap when no other financial institution is willing to grant you funds due to your credit.
But with high fees and short terms, many cash advances spin people into a cycle of debt. This cycle comes at a considerable cost to nearly a quarter of all payday loan borrowers.
“… [f]or 22 percent of new loans, borrowers end up renewing their loans six times or more. With a typical payday fee of 15 percent, consumers who take out an initial loan and six renewals will have paid more in fees than the original loan amount.”
That’s according to research from the Consumer Financial Protection Bureau (CFPB), which provides an in-depth review of these financial products and how the industry works.
The CFBP’s key findings highlighted the concern that these advances can become debt traps for consumers. These financial products are marketed to people living paycheck to paycheck, so repaying funds in one lump sum within two weeks may be challenging for those truly struggling with their finances.
However, the CFBP’s report underscores the need for regulation rather than banning these products outright, as they provide an essential service to consumers whose bad credit disqualifies them from mainstream funding. Without help from bad credit funding, these borrowers may fall behind critical expenses, which could harm their credit score further and push them down the economic ladder.
Online installment loans provide an alternative to these short terms. While still consider a short term loan, online installment loans are due back over a series of payments scheduled over multiple weeks, months, or even years.
These payments break up the cost of the loan into smaller installments compared to a cash advance’s lump-sum repayment. A smaller individual payment may help borrowers juggle their repayments with the rest of their budget and avoid renewing their terms, even if the installment loan has the same high fees as a cash advance.
But like any borrowing option, the advantages of these financial products don’t outweigh the need to research your options. Even the best rates and terms can be a challenge if you can’t afford them, so it’s essential you think critically about the rates and terms before you lock into any product. Compare APRs, run a background check on every lender, and learn how to budget for your payments.
Budgeting is generally easier when you have good credit, so focus on how you can improve your score with every financial decision. Setting good credit habits may help you improve your credit history and unlock more affordable options in your future.
Until that day comes, online installment loans with longer terms than the typical cash advance may provide you with manageable borrowing options in an unexpected emergency.