Installment loans can be a great option when looking to finance a large purchase or handle a financial emergency. However, you could end up paying back more than is necessary if you fail to choose the best loan option available. That is why it is so important to know what to look for when comparing different installment loan options. Continue reading to learn more about three of the most important factors for you to consider when comparing available loan products.
#1: Fixed Rate Fee Versus Traditional Intrest
While some loans will come with a traditional interest rate attached, others will utilize a fixed rate fee. Loans with a traditional interest rate will continue to accumulate interest charges until the entire loan plus any interest has been repaid. Loans with a fixed rate fee will have one flat rate fee assessed at the time the loan is taken out. This fee will not increase or decrease based on how long it takes you to repay the loan. While some people prefer a loan either with traditional interest or with a fixed rate fee, the fact is that neither of these options is best all of the time. In many cases, a flat rate fee can cost you more than a low-interest rate if you are able to pay off your loan quickly. However, even the lowest interest rate could result in higher interest charges if you require a longer amount of time to repay your loan.
#2: Loan Term
Another thing you will want to consider is the term of the loan. This terminology refers to how long you have to repay your installment loan. While some loans are designed to be short-term, other loans will give you several years to repay the balance. Deciding which of these options is best for you will often depend on how much money you need to borrow and how much you can afford to pay toward your loan balance each month. Generally speaking, it is best to choose the loan with the shortest loan term while also having a monthly payment that you can afford. This will allow you to save on interest charges.
#3: Credit Reporting
Taking out an installment loan is a great way to build your credit. However, these loans can only be beneficial to your credit if your lender reports your loan to the major credit bureaus. Consequently, you will want to inquire with each lender regarding their credit reporting practices before selecting the lender that is right for you.
For more information about installment loans, contact a local service.