Taking installment loans online is seen as a debt trap just like payday loans by some consumer advocates. To learn more information about installment loans online, check this out:
Lauren Saunders, the associate director at the National Consumer Law Center in Washington D.C. call installment loans as long-term payday loans. The interest rate is lower than payday loans but it is a larger debt trap for borrowers.
What are installment loans online?
These are the types of loans that are approved and processed online. Auto loans and mortgages are examples of installment loans that are paid on regular monthly schedules.
Lenders target people with bad or no credit to this type of loan. However, like payday loans, it comes with high-interest rates and charges.
Installment loans provide lenders with cash flow but leave the borrowers with high-interest loans that are hard to repay.
Spot these 5 Red Flags that Tell Installment Loans Online are Debt Traps:
1Lenders promote low monthly payments.
When a lender promotes low monthly payments and disregards the annual percentage rate (APR) and terms of loans is a red flag. You need to spot this sign immediately because there is definitely a hidden cost.
The main reason for this tactic is to hide the real cost of the installment loan. Thinking that a lender offers affordable monthly payments, you may be trapped taking the loan but later realize that you’re paying more than the APR.
2Very short or long payment schemes.
Does a lender offer you a very short or long repayment scheme? This is a loophole that you should be taking into consideration.
Installment loans offered over the internet usually take up between 4 and 60 months of repayment. Be alarmed when the lender offers you a repayment schedule that is not within the range.
Lenders may offer different payment terms but the majority provide almost the same schedules. If the term seems impossible, find out what’s hidden.
3No credit check needed
Some lenders offering installment online loans don’t ask for credit history. Since this loan is usually an unsecured type of loan, they don’t also ask for collateral.
Although not all, some lenders use this promotion to attract borrowers. They will add high-interest rates, charges, and penalties to your principal loan that are hard for you to repay.
This may be a sign for you to investigate. Make sure to ask how much you really have to repay based on APR, terms as well as conditions.
Usually, fake lenders would make it appear that the application is super fast and easy. It’s almost a guaranteed loan. This should give you a precaution.
4The lender doesn’t disclose the fees, interest, and penalties.
Before signing a loan agreement, you need to clearly know and understand the fees, interest, and penalties of your loan. If the loan provider doesn’t put it in the agreement, you should be smart enough to ask for it.
It’s a clear indication that the lender is operating illegally. It’s mandated by the state law to include these elements in the loan agreement. If they are not upfront about it, they are surely up to something.
Don’t just sign the agreement if something is bothering you. Ask the questions that need to be answered because you are going to repay the loan once you signed it.
5You are asked to pay an upfront fee.
If you encounter a statement like a lender is going to grant your online loan if you pay upfront fee is one red flag that you must be watching out for. If you agree to do this because you’re in need of cash, you’re doing yourself more harm.
Fake lenders would ask you to pay the fee immediately. However, just like other promises, it’s left to be broken. After paying the fee, they are gone and can’t be reached.
This is a sure indication of an online scam. Don’t be easily trapped by not being smart.
Sometimes, when you are in need of immediate cash, you tend not to think straight. Watch out for these 5 red flags that can save you from bigger financial troubles.