5 Questions to Ask Yourself Before Taking out an Installment Loan
There are many types of loans that can be helpful in your hour of financial need such as payday loans, cash advances, and title loans, etc. But the best kind of loan that you can opt for to take care of your emergency financial need is an installment loan.
It is important to ask the correct questions before opting for an installment loan. Listed below are 5 questions to ask yourself before taking out an installment loan.
- Can I afford the repayments?
The periodic repayment amount of an installment loan consists of the principal and the interest, i.e., it has an amortized repayment structure. The sum total of the repayments is the total amount that you will repay to the lender. Before taking the loan, you have to ascertain whether or not you can afford to repay the monthly installments, i.e., whether it can be comfortably squeezed into as part of the monthly budget. You also have to take into account the frequency of the repayments/installments and the duration/term of the loan. If you take a big loan, then the repayments will be more. If the term is for a longer time frame, then the total amount to be repaid will be more as compared to a shorter loan term. Verify the affordability based on the above factors and then take out the installment loan.
- What is the rate of interest?
Find out the interest rate and other fees and charges related to the installment loan. Research and find out the different rates in the market. The APR (annual percentage rate) can help measure the interest rate and calculate the overall cost of the loan for a period of one year. It may be noted that the interest is charged on the outstanding amount; thus the interest paid each year decreases as the balance reduces with each repayment.
- What are the repayment dates each month?
All the household bills have due dates. Verify whether the repayment date of the installment loan does not clash with the due date of the bills. Else, when the time comes for payment of the loan, there may not be any money in your bank account, which can result in late fees, penalty charges, etc., which can increase the overall loan burden. Work with the installment loan lender to adjust the due date to something that does not clash with the payment schedule of home bills, etc.
- What is the lender’s reputation in the market?
Do not blankly trust the advertisements put out by the lender. Check the web and other online resources to verify the reliability and reputation of the lender. Also, read varied reviews by other customers and their experience with regards to taking out an installment loan with the specific lender. This will help ensure that get the best possible legitimate loan deal.
- Verify if there are any penalty charges for pre-payment?
If you come across funds that you can use to repay the installment loan in full before the term of loan is over, then you should do so as it will help save money.
Some lenders have loan pre-payment penalty charges. If the lender has such charges, ask the reasons why and try to get it removed. Also, if the charges are the there, then be extra careful when reading the contract as there may be other charges in fine print.