Choosing a lender is one of the first steps you’ll take before applying for a loan you may need in an emergency. But with so many installment loan companies operating online nowadays, you may have trouble pinpointing which one is the best option for you.
If online installment loans, such as online installment loans with monthly payments, make sense for your unexpected emergency, check out this list to get an idea of some things that you should look for while identifying which option is right for you.
Here’s what to look for in online installment loan companies.
1. Transparent Advertising
Watch out for the way installment loan companies talk about their products and services. Are they transparent with respect to the cost of their products?
This is where the Truth in Lending Act (TILA) comes in. It is a federal law that protects borrowers by requiring certain disclosures to be included when advertising credit.[1] It requires both storefront and online installment loan companies to be upfront about the cost of their credit products right away — before you apply for or receive funds.
How much it will cost to repay a loan is one of the essential questions to ask before you borrow any product — whether it’s a payday loan, installment loan, or line of credit.
Responsible installment loan companies won’t hide behind false advertising. They’ll provide you with the full facts, so you have the info you need to make an informed decision.
2. Security Measures
Online installment companies collect your personal information in a way that sets them apart from a typical storefront branch. Rather than filling out paperwork at a brick-and-mortar location, you’ll share your information over the web to get the money you need.
Responsible installment loan companies should handle your sensitive information carefully. They have cybersecurity that protects your data at every step of the way — from receiving your application to storing your information on their servers.
If your personal information is not handled with adequate security by installment loans lenders, it may result in some consequences, such as increasing your risk of identity theft.
Identity theft happens when a criminal gets a hold of your personal information and uses it to open fraudulent personal loans and lines of credit.[2] They’ll rack up charges on your loans, such as a line of credit, or cash loans, and they usually don’t intend to pay them back.
Because your name is on the account, all their spending will catch up with you, and it may leave a crater in your credit history.
Identity theft is not something you want to deal with. While you may dispute the charges and remove its effects from your credit history, getting back to normal may be a long process.
It’s easier if you simply share your sensitive info with only those online installment companies you trust to protect your data properly. However, regardless of how tight a company’s security measures are, you should know that there’s always some amount of risk involved when sharing your personal information online.
Here at MoneyKey, we value your privacy. That’s why we use secure socket layer (SSL) encryption and Verified Site Certificates to safeguard the info shared between your computer and our servers.
3. A Credit Check
Before a financial institution approves your application, they may want to understand your credit history. This peek into your past borrowing habits may help them determine if you can handle the responsibility of your future loan repayments.
How? A credit check shows how you previously managed other debt. As long as a lender reports your credit activity to a credit bureau, any account may be on your credit report — whether it’s a cash advance, an auto loan, or a mortgage.
If your credit check shows you have a long history of keeping past loans in good standing, a financial institution may reasonably assume you may continue to manage your future loans in the same way.
The same reasoning may be applied to a long history of late payments. If you regularly miss due dates, a lender may predict you’ll continue to do so with future installment loan payments.
But what about installment loan companies that don’t check your prime credit score?
They may not see your past borrowing behavior, so they may not be able to gauge your future ability to repay your loan. However, they may check other things such as your income or debt-to-income ratio.
Keep in mind that some online direct lenders that check credit will still offer funds to people with subprime credit.
4. Fees
While APR is an important factor in any installment loan or line of credit, it’s not the only thing you should look out for while browsing for loans. Keep your eyes peeled for any additional charge or fee, as this will help you to understand the cost of your loan better.
It also gives you a chance to spot any fees that don’t belong with your loan.
Up-Front Fees
Watch out for an advance or up-front fee you must pay before you access your money. They may be disguised as processing or paperwork fees, but in reality, they’re a red flag you’re dealing with a scam.[3]
Keep in mind, legitimate installment loan lenders may charge multiple fees in addition to interest, but they will disclose them clearly and expect you to pay them after you’ve received the loan.
Prepayment Penalties
Another fee you should keep watch for is a prepayment penalty.[4] Some lenders apply it if you pay off your loan before its due date.
Does this sound counterintuitive? A lender wants you to pay back what you owe, after all. So why would you be fined for paying your loan back early?
Early repayments may reduce your balance, which may impact the overall interest you pay. As a result, these payments may affect what a lender earns.
Some lenders may apply these fines to deter you from paying off installment loans early to protect their investments.
Responsible lenders who are invested in your financial health, may encourage their borrowers to make early repayments when they can.
5. Loan Term
Your term — or the time it takes you to repay your installment loan — is equal to APR and fees in importance. How long it takes you to pay back what you owe may have a significant impact on the true cost of borrowing.
How so? Let’s compare short vs long term loans.
What Are Short Term Loans?
Short term loans are typically personal loans you repay in a few years or less. Generally speaking, they give you a small period of time to pay back what you owe.
A shorter time frame means you have fewer repayments overall compared to a long term loan. Short term loans may come with higher monthly payments because of this.
What Are Long Term Loans?
Long term loans are simply personal loans that may take several years to repay. You may even need a few decades to pay off the longest of them.
Because they last longer, long term loans come with more repayments. This may reduce the size of individual payments, as the cost is split between a greater number of payments compared to short term loans.
But making smaller payments against what you owe means it may take longer to pay off your loan. And with more time comes more interest, so you may accrue much more interest than with short term loans.
Each option comes with pros and cons depending on your financial situation. It may also depend on your rates, as your APR and term play off each other. Find out how they do before you decide if an installment loan is affordable for you.
6. Responsive and Professional Customer Service
While the affordability of a loan takes center stage, don’t let it overshadow the quality of an installment loan company’s customer service.
You may tell a lot about installment loan companies by the way their customer service team treats you. Abusive or aggressive representatives who intimidate or ridicule you are warning signs. Nearly everyone needs help at some point in their life. You shouldn’t be made to feel small for asking for it.
A customer service representative is there to help you at every step of the process. As the face of installment loan companies — or the voice of online installment loan companies — a customer service team may be the first or last impression you have of a lender.
If you have questions about the rates or terms, this team should help you understand it better in clear and respectful ways. They’re a knowledgeable and helpful contact should you run into any difficulties along the way.
We take customer service very seriously here at MoneyKey, and our Customer Care team is always ready to help out. With a friendly, patient, and knowledgeable team answering your calls, it’s no wonder we regularly get high ratings in online reviews.
Finding Reputable Online Installment Loan Companies is Possible
It doesn’t matter if you’re a pro at researching for loan companies or it’s your first time applying for an installment loan, asking for help may sometimes be a daunting or overwhelming experience.
When in doubt, refer back to this list as a rubric for responsible lending. If a lender is missing any of these traits, cast it aside for another lender that ticks all the boxes. Only the responsible installment loan companies commit to all of these principles.
Confirming a lender has what it takes may mean more work upfront. But all the legwork you do to research online installment loan companies may pay off, helping you find affordable rates for your finances.
If you’ve already done your research and think we’re the right fit, click here to get started with an application today.
[1] https://www.investopedia.com/terms/t/tila.asp
[2] https://www.experian.com/blogs/ask-experian/what-is-identity-theft/
[3] https://www.consumer.ftc.gov/articles/0078-advance-fee-loans
