Understanding How Installment Loans Work as an Alternative to Payday Lending Products

Installment loans available from companies like Blue Trust Loans are alternatives to payday lending products. Also called cash loans and personal loans, these financial products allow borrowers to pay the money back in several installments instead of owing the entire amount on the person’s next payday. This gives them time to pay off the balance and interest without having to give up a substantial amount of the next paycheck, which can leave the person strapped for cash and having to take out another payday loan right away.

The Need for an Installment Loan

These loans are generally intended for lower-income people with problem credit. Individuals who aren’t at the bottom of the income scale also may need a loan if they never save any of the money they earn. They have trouble coming up with cash for an emergency because they don’t have any savings and banks won’t lend them money.

The need for an installment loan may be a warning sign that they should take steps to improve their financial situation. In the meantime, however, they must get their car fixed, pay an overdue utility bill or come up with $200 for the veterinarian.

Interest Rates

Interest rates for personal installment loans are relatively high because people with no credit or bad credit are viewed as higher-risk borrowers. Nevertheless, companies offering these loans typically are trying to make borrowing an option for these individuals without resorting to one-week or two-week payday loans. The fees allow them to offer loans to trustworthy customers while effectively managing the percentage of those who default. The interest rate and the entire amount that will be paid back should be transparent during the application process.

The Next Step

Once the immediate crisis has been resolved, the next step should be making a budget that allows the individual to pay all expenses and save a certain amount of money for an emergency fund. Crafting a budget can be painful, but it’s a crucial part of effective financial planning. A myriad of informative resources are available online to help. Raising one credit’s score should be a priority too, as this will expand access to low-interest credit options.

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