3 Ways to use Installment Loans Responsibly

Getting extra money when you need it the most can be a lifesaver. Having the ability to pay that money back in digestible chunks over time certainly helps as well. For many, installment loans are the answer to an otherwise bleak financial outlook. But aside from making sure you can afford the repayment terms, there are a few things you need to do when you accept any borrowed money.

3 Tips for Using an Installment Loan

All installment loan terms are different depending on the borrower and the underwriter. However, there are some general rules that usually apply to everyone. Abiding by these simple rules can make the process of using an installment loan much easier and less taxing on your bank account and/or credit score.

1. Always Try to Pay Your Bill on Time

When you sign a loan contract, you’re expected to hold up your end up the bargain until the money is paid back in full. Installment loans may allow you to pay back monies owed over time, but that’s only because you agreed to make payments at previously specified intervals. So, while many creditors understand that life can be unpredictable, you should always try to pay your bill on time every time.

2. Understand Interest Rates and Principle

Did you know that a portion of your repayment fees goes to the interest on your installment loan? Only a percentage of the money you submit goes to principle (actual money owed), while much of it is applied to the interest charged by the creditor. This continues until the interest is paid off, explaining why borrowers can pay numerous payments and not see much of a change to their balance.

3. Know What It Does to Your Credit Report

It’s important that you understand the fact that installment loans will affect your overall credit score, but not necessarily in a bad way. If your debt-to-income ratio is low enough, a small installment loan agreement on your credit report will not make much of a dent. And as long you pay the bill on time and avoid borrowing money from other lenders you should be fine. Just be ready for a change to your score if you take a long time to pay off the loan, default on payments or request a charge-off.

The Final Verdict

Installment loans can save the day, but only if you use them responsibly.