In the face of a financial emergency, it’s your emergency fund’s time to shine under the spotlight. Unfortunately, it’s not always ready for its close-up. Whether you’ve drained it to cover another emergency, or you just haven’t built up enough savings yet, your emergency fund may fall short of what you need.
When you do, it’s nice knowing there are installment loans that can pick up the slack. Here are four tips to help you find an affordable installment loan that works best for your budget.
1. Borrow for the Right Reasons
It’s always good to remember that borrowing money is another way of saying going into debt. This isn’t meant to scare you. In the financial world, there is such a thing as good debt. It represents a loan that improves your financial situation.
In some cases, it’s a student loan that helps you earn a degree that gets you a higher income. In others, it’s an installment loan that helps you tackle any unexpected emergency auto bill so that you can keep driving your car to work and earning a paycheck.
You don’t want to go into debt for something unnecessary or that has short-term value. That means taking a vacation or paying for a new entertainment system on borrowed money is off the table.
2. Shop Around
In an emergency, time is of the essence, but don’t let haste convince you to be impulsive. Agreeing to the first installment loan you find is risky. Just because it’s the first doesn’t make it the best.
Although it can be hard to take a step back when you have an important bill waiting, do yourself a favor; devote some time to researching what’s available and ask around for advice.
The time you spend comparing rates, terms, and conditions will pay off down the line, especially if you manage to uncover a deal.
3. Pay Attention to the APR
You can’t accurately compare rates until you see the APR. It represents the true cost of borrowing more than anything else because it combines the interest rate with every other fee you may have to pay.
APR comes with a handy formula that you can find here. Here is all you need to use it:
- Collective cost of each fee
- Interest paid over the life of the loan
- Your principal
- The number of days included in the loan term
Don’t worry if this looks complicated. It isn’t once you have practice. But even still, your lender should make the APR clear so that you don’t have to crunch the numbers on your own. If they don’t, they’re breaking one of the cardinal federal lending laws.
4. Check Your Budget
Unlike direct payday loans, installment loans have multiple payments due over the term of your contract. Missing even one can result in late fines, and it may prolong your term, which may increase how much you pay in interest.
Always check that you can afford each payment on (or preferably before) its due date before you borrow.
When an unexpected expense crashes into your life, an installment loan gives you the tools to dig yourself out of your emergency. Or, it can dig into debt.
The only way you can avoid the latter is by researching your options thoroughly before you commit to a loan. Remember these tips the next time you need a little help finding an installment loan that will help rather than hinder your finances!