When you are a bit short on cash and are trying to get your hands on some cash to help you through a tough time or make a necessary purchase, we often turn to loans. Loans can be great, a good way to boost your credit score. 

However, they can also be a great way to destroy your credit score too. Installment loans are different from credit cards, which we are all very familiar with, however, they do offer more, the most used of all the installment loans being personal loans. 

You can get installment loans with banks, credit unions and online lenders, CreditNinja offers online installment loan

But before we tell you exactly what you need to consider when taking out installment loans, let’s understand exactly what they are. 

What Is An Installment Loan?

Basically, installment loans are loans that give you instant credit (or near instant). You apply for the loan, the lender credits your account on the same day, and you repay the loan in installments. 

They are a great idea when you are tackling emergency bills, medical bills and such that have sprung up out of nowhere and cannot afford, or do not want to use savings to pay off.

Things To Consider

So, before you go taking out an installment loan, what should you be thinking about? Well, there are a few things you need to consider before you take one of these out. 

Here are the top 5 things you should be thinking about right now. 

#1. Interest Rates

Interest rates should always be at the forefront of your mind when it comes to any loan. Installment loans can have a high interest rate that can translate into you paying back higher amounts. 

You can shop around before you take out a loan though, and try to find the best deal for yourself. Personal loans are usually pretty good, alternatively payday loans are the opposite with interest rates. 

Your interest rate will also be dictated by your credit score, so you should be thinking about how your credit score is looking right now. Your credit score will drop temporarily when viewed by a lender, but this is only temporary. 

And you should know what your credit score is, so you can anticipate the kind of deal you will get. If your score is over 600, you can anticipate a fairly good deal with a lower APR.

#2. If You Really Need This Loan

Before you take out any loan of any kind, always consider if you actually need the loan in the first place. You should only apply for it if you truly need it. If you do not need a loan you could be standing on the precipice of damaging your credit score for no good reason. 

Some might take out a personal loan for a vacation, do you really want to spend ages paying back what you owe for a vacation? When you could have just saved. 

Consider if what you need it for, is actually worth it. 

#3. Repayments

Consider loan repayment terms. The application is easy for the most part, it’s paying back that is a drag. With a lot of personal loans you will pay back the loan in installments over months with the interest rate. 

If you are doing this, you could set up automated payments from your account to ensure you pay it off well. However, every loan is different, so always understand the repayment terms and what you are getting into.

#4. Can You Afford This?

It might seem super obvious, but you should always note if you can actually pay this back or not. You might be in a financially tricky position and paying back a loan plus interest could be just the thing that tips you over. 

Payday loans are notorious for this with high interest rates, they often land us in a cycle of debt. Some loans are more affordable though. Consider the long term, and how you will be able to financially manage paying this loan back over time. 

Is it realistic for you? 

#5. Are You Aware Of The Consequences If You Default?

No one is perfect, and we do make mistakes, but do you know what will happen if you make a mistake? Missing a loan repayment is a much bigger mistake than spilling spaghetti all over the kitchen floor. 

If you have a secured loan the lender can repossess your property, if you have an unsecured loan, then you can be threatened to sue, have debt collectors harassing you and so on. 

Usually it does not jump straight to this, you can often make an agreement with the lender and work things out, but in worst case scenarios you can lose property or be hounded by debt collectors. 

Know the consequences of your actions!