When you have poor credit, or you find yourself in a difficult financial situation, you may be looking for a solution to money management problems. Payday loans can provide a temporary solution to your problem, but they have many drawbacks. It is easy to fall into a payday loan cycle in which you keep taking out payday loans each pay period and end up struggling to get by. Another alternative you may be considering is an installment loan offered by the same companies that offer payday loans. They may also be offered by a loan store that you can find in a strip mall or downtown. These installment loans are usually for smaller amounts of money between $100.00 to $500.00. The stores make their money on these loans in the origination fees, the rates often cost more than using a credit card.
1. What Is a Loan Store?
A loan store is a business that is set up primarily to lend people money. In these instances they are generally located in poorer parts of town. The loan store offers a variety of smaller loans to people who may not qualify for a traditional loan or who only need to borrow a small amount of money temporarily. The loan stores specialize in this type of lending. They do not usually offer mortgages or traditional car loans. They may offer title loans, payday loans and offer check-cashing services. They make money by the fees that they charge their customers. Loans stores are different from banks because they do not offer checking or savings accounts or other banking products.
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2. Dangers of Small Installment Loans
One of the dangers of a small installment loan is that it is easy to fall into the cycle in the same way you would with a payday loan. If you continue to borrow the money, you may begin to build a monthly payment that makes it different to afford to pay for your basic necessities. Another problem with these loans is that the interest rates and origination fees tend to be higher than traditional loans. When you have to pay more to borrow the money, it means that you have less to spend now or in the future.
3. Installment Loans versus Payday Loans
An installment loan is often better than a payday loan, because it does allow you to break up the loan payments over the next few months. This makes it easier to recover from the loan, and it can give you the opportunity to cover a small bill without breaking the bank. If you have a choice between the two loans, you will likely be better off choosing the installment loan, because it is easier to make the smaller payments spread over the next few months, and still cover your other expenses, then it would to pay for the entire loan all at once. It is important to think about how this will affect your budget in the long-term. If you do choose this type of loan, you should avoid renewing the loan every few months. This is how the loan will get very expensive.
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4. Alternatives to Small Installment Loans
When you need to borrow money, you will find the best deals on interest rates and fees by going through your local bank. The banks will charge a fair interest rate and keep the fees reasonable. A credit card is often a better option than using one of the installment type loans. These companies focus on people with lower credit ratings that may not qualify for loans through other means. It is important to carefully consider before taking out a loan from a loan store. In the future you can avoid using this type of loan by setting aside money for an emergency fund each month. Even setting aside $25.00 to $50.00 each week can help you avoid paying these charges. Setting up a budget and working to break free from living paycheck to paycheck can help you save money and avoid these types of situations. A final alternative is a salary advance loan through your bank or your credit union.
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