Installment loans can be useful financial tools. But is it safe to get an installment loan online? Here’s what you need to know about online installment loans.
What Is an Installment Loan?
An installment loan is a loan through which you borrow a fixed amount of money and pay it back in monthly installments. Installment loans can be secured or unsecured. They can also have fixed or variable interest rates. Other than that, the payback date is set in stone. This serves as a comfort for those who fear the revolving nature of credit cards, which can lead to less predictable payoff trajectories.
Need a personal loan? Dispute any credit report errors before you apply with Upturn Credit’s FREE tool.
You can take out an installment loan for a variety of reasons. In fact, you might already have installment loans in your name. Mortgages, auto loans, student loans, and personal loans are all considered installment loans. By contrast, credit cards and lines of credit are considered to be revolving credit. That is, credit that can be borrowed against and paid back repeatedly.
How Do Online Installment Loans Differ?
Traditionally, someone might obtain an installment loan by going to local creditors. One might obtain a personal loan through their bank or credit union, an auto loan through their bank or credit union or a car dealership, or a mortgage through their bank or credit union or with the help of a mortgage broker.
The only thing that differs between traditional installment loans and online installment loans is the method by which they’re obtained. Although you could apply for a loan with your bank or credit union online if they have the platform, a search for installment loans online typically leads you to online-only lenders.
In terms of the structure of the loan, there’s no real difference. Every loan will offer their own terms, but the borrowing still happens once, and repayment takes place over a predetermined period of time.
As for the difficult part? That could be finding installment loans online through reputable lenders.
A Warning About Online Installment Loans
There are a few things to be aware of when looking for online installment loans. For starters, clicking on what you think is a link to an installment loan could cause you to inadvertently land on the website of a payday lender.
When I started my research for this article, I typed the phrase, “what is an online installment loan” to see what would come up. Instead of articles talking about this financial product, I saw result after result of articles and advertisements from online payday lenders.
Figuring the results in my search were being affected by a search I previously did on payday loans, I performed the same search in an incognito tab. The same thing happened.
Although the loans in these results were true installment loans, it proves that it might not be easy to find a lender that isn’t also selling payday loans. It’s up to you to decide if you want to work with a lender that may charge upwards of several hundred percent APR, even if not on the product you end up with.
Making Sure You Don’t End Up in a Scam
If you do an online search for installment loans and find a reputable lender, an installment loan can be an easy and convenient way to finance a large purchase. Here are a few things to watch out for to ensure that you get the convenience you want and not an expensive headache:
- Advance-fee loans: You’ll know this is likely what you’re looking at if the lender advertises guaranteed credit approval and requires an upfront fee to get the loan
- Payday loans: These are short-term loans that come with sky-high interest rates and that are paid back out of your next paycheck; they often lead to renewed payday loans or rollovers, starting what can be a long and expensive debt cycle
- Title loans: Loans that require using your car’s title as collateral; also come with high interest rates and a short-term payback, such as 15-30 days
- Any lender that says they don’t check your credit, that doesn’t disclose its fees, that has bad online reviews, that doesn’t list contact options for customer service, that requires you to sign up for automatic payments, and that has typos or other errors that might prove the website is not secure
Remember, the point of an installment loan is to somehow make your financial life easier. Extensively researching the lender you wish to work with is one way to protect yourself against predatory or egregiously expensive credit offers.
Before you get a personal loan, make sure you have all the facts. Start here.