by Clare Louise | April 8, 2019 8:35 am
You can get all sorts of financial advice virtually anywhere – from the internet to that smart guy down the street. The key to using all this advice to your advantage is being able to sort out the good from the bad. Take the idea of installment loans as an example. Opinions may vary on whether they are a good thing or not. Installment loans can be good or bad depending on the purpose for using them and how they are actually used.
An installment loan is a form of borrowing that requires the consumer to pay back the money borrowed in bi-weekly or monthly payments. As such, your typical mortgage is an installment loan. But not all installment loans are long-term loans. Some are short-term.
For example, you could get an installment loan that doesn’t have to be repaid by your next paycheck date. Instead, you may have three months to repay what you owe. Such a loan would qualify as an installment loan.
Note that installment loans, like all loans, come at a cost. First and foremost is interest. This is the amount of extra money you pay on top of principal for the privilege of borrowing. On top of that interest may be additional fees and charges assessed by the lender to cover their administrative costs.
It is possible to manage your money while using installment loans. It just takes some common-sense practices. Here are three of those practices:
It is a bad idea to even consider installment loans if you are not absolutely sure you have the money to repay them as they become due. In order to know that, you need to have a budget in place. The wisest course of action is to always budget for installment loan payments in order to guarantee you don’t borrow more than you can afford.
Along those same lines, do not take on installment loans to cover routine spending. Don’t borrow to pay your monthly bills, buy groceries, pay for your cell phone, etc. If you are borrowing to meet routine spending needs, it is a good sign that your expenses are outpacing your income. You need to either get a second job or reduce your spending.
Installment loans can be a tool for managing your money. Ultimately though, the best way to approach any kind of borrowing is with a commitment to eventually being debt-free. Working toward being debt-free will ultimately save you money in the long run by allowing you to pay as you go rather than borrowing.
Installment loans are neither good nor bad. They are simply one financial tools that consumers can use to better manage their money. Without installment loans, a lot of us would find it a bit more difficult to manage our money well. So in that sense, they can be good.
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