There are a bunch of different loan types. Car loans, mortgages, student loans, fixed-rate loans, variable interest loans…the list goes on. Any of these might be the best loan to get depending on the situation, but when is an installment loan from an online lender a good idea?
The New Grad Problem
Let’s say you just graduated from college and moved out of student housing and into a nicer apartment. You have a new job, but they won’t pay you for another few weeks. How are you going to make rent?
You can’t get a loan from the bank because you either have a bad credit history from your reckless college days or you have no credit history at all. This would be a time to use online loans for bad credit from direct lenders.
Sorry to say it, but you’re just more of a risk than many banks are willing to take. They can’t be confident that you’ll pay them back because you don’t have a good credit history. A good alternative would be to take out installment loans online for your bad credit.
Many online lenders don’t check your credit history. This makes online personal loans perfect for those with bad credit.
Another issue with taking loans from banks is the time that it takes to get the money you need. You have to go to the bank, submit an application, the application has to be approved, the transfer has to be made, and the money has to become available. There are a lot of steps and it can take a while.
This process can take anywhere from a few days to more than a week.
With online loans from direct lenders like Lift Credit, the money can be in your account in one business day. This quick turnaround time makes a big difference when you’re looking at an eviction notice.
What You Should Know
Before you take out any type of loan, you should know exactly what you’re getting into. If you’re not familiar with the terms of the loan, it can do more harm than good. Here are some of the things you should make sure you know about your loan.
How Much You’ll Pay Over the Life of the Loan
You may be taking out a small $1500 loan to make rent one month, but keep in mind that you’ll have to pay back more than that $1500. Depending on your interest rate, you could end up spending quite a bit more than $1500 to pay off the original debt.
As we mentioned earlier, banks might not loan to you because they think it’s too risky. Online lenders make up for this risk by charging a higher interest rate on your loan. This is just something to be aware of in order to avoid getting too big of a loan to repay.
There are two primary interest types: fixed interest and compound interest. Fixed interest is pretty simple. If you got a $1000 loan with a 10% fixed interest rate, the amount you would have to pay would grow by $100 dollars (10% of $1000) each repayment period or installment.
Compound interest means that during the first installment, the loan would grow by 10% of $1000. During the next installment, it would grow by 10% of $1100. You’re not just paying interest on the loan. You’re paying interest on the last month’s interest.
This means that if you take out a loan with compounding interest, the amount you have to repay grows much faster than a loan with fixed interest.
The most important part of a repayment plan is sticking strictly to it. If you are strict and aggressive in your repayments, you can repay the full loan much more quickly, and you’ll spend much less money on growing interest.
The personal finance world can be a little bit complicated, so if you’re new to borrowing money, get help when figuring out how to borrow and repay your loan. For more info on what you need to know before getting a loan, check out this blog post by your friends over here at Lift Credit.