Borrowing money online is a straightforward way to handle an unexpected emergency expense when your savings are low. But for all their convenience, online loans are still a big financial decision. Choose wrong, and you may lock into rates and terms you can’t afford.
Luckily, online loans come in all shapes and sizes. Ask these four questions to find out if the one you pick is the right fit for your finances.
#1: Is it Secured or Unsecured?
Whether a loan is secured or unsecured is an important detail because this distinction may change the types of loans you qualify for and at what rates and terms.
A secured personal loan requires collateral as insurance. When you do, it’s like betting a valuable belonging on your ability to repay your loan on time. If bet right, you keep your asset. But if something stops you from paying, your lender may take your collateral as a form of payment to recoup their losses.
Putting collateral on the line may be a good idea if you have a rock-bottom credit score, as your asset offsets negative your history that suggests you may have trouble repaying what you owe.
If you don’t like the idea of collateral, secured loans aren’t the only option if you have lousy credit. You may find online installment loans for bad credit available by looking for unsecured lenders. An unsecured personal loan doesn’t require collateral, which means your credit score may have more significance when setting rates and terms depending on the lender.
#2: Is it a Payday Loan or Installment Loan?
Making this distinction is another important detail that tells you a lot about the rates and terms you may pay. While both may offer emergency funds online, they vary greatly in price and repayment style.
If you apply with a payday loan direct lender, you’ll have to repay what you owe in one lump sum, usually by your next payday. A payday loan direct lender caters to people with bad credit, so they tend to have high-interest rates.
If you apply with an installment loan direct lender, you’ll have multiple payment dates scheduled over weeks, months, or even years. People of all credit scores may contact an installment loan lender, so the interest rates vary more drastically than with direct payday loans.
#3: What is the APR?
APR, or Annual Percentage Rate, is a crucial number when it comes to any loan. While many may believe it’s the same thing as the interest rate, APR expresses a different figure entirely.
APR combines the interest rate, finance charges, and any other fee that may apply to your loan. These fees may include origination, broker, processing fees, and more.
It’s a good idea to see an itemized list of these fees to ensure there aren’t any hidden charges in your contract, but the APR wraps everything up in a tidy package. By doing so, it offers a more holistic view of the cost of your loan beyond just the principal.
According to the Truth in Lending Act, the APR must be advertised with every loan — whether you opt for a payday direct lender loan or installment loan. If you can’t find a TILA disclosure before you apply, consider looking elsewhere for help.
Compare the APR to your budget to check if you can afford all the charges applied to your loan, not just the principal.
#4: Can You Make Additional Payments?
On the surface, repaying your loan faster than the outline of your term seems like a good idea. There’s less time for interest to accrue, and you’ll wipe out this debt from tying up your budget sooner.
But once you dig a little deeper, you may find out there are consequences to making early or additional payments.
Some online direct lenders don’t want you to save on interest because it means they’ll earn less money off your loan. They may penalize you to deter you from making any pre-payments outside those stipulated in your contract
You want to find an online direct lender that encourages you to make additional payments, as this indicates they’re concerned about your financial well-being.
The Takeaway
Finding a lender involves some give and take. On the one hand, you need to meet the eligibility benchmarks set by a lender. But more importantly, you need to find a lender that meets your strict standards.
You need to know your loan rates and terms inside and out before you can tell if it’s the right fit for your finances. More still, you need to know these details before you lock into a contract.
Ask these questions to help you get down to brass tacks. They’ll help you find the best possible loan right now.