Borrowing money may be a familiar process, especially if you’ve used installment loans online before. But it’s still a big decision — whether it’s your first or fifth time. If you don’t make it carefully, you might pick an installment loan that challenges your budget when it comes time to pay it back.
A loan that doesn’t fit your budget is like borrowing money on hard mode. Why do that when there’s an easier option available? Check out these tips to help you manage your next installment loan better.
Rule #1: Use an Installment Loan for Emergencies
Right off the bat, question why you’re taking out a loan. When it comes to online installment loans, stick to unexpected emergency expenses.
An emergency looks different to everyone, but they tend to be necessary expenses that come out of the blue. Like when your car breaks down unexpectedly one morning, and you need to get towed to the shop. If your savings fall short, an installment loan may pick up the slack.
Does paying off another installment loan count as an emergency? While there may be a few exceptions, it’s generally not a good idea.
It’s a Band-Aid solution that doesn’t address the root of the problem. You would be taking out more debt to pay for debt you already can’t pay without addressing the fact that you’re using a financial product you can’t afford.
Try contacting your lender to tell them you’re experiencing difficulties first. You may be able to work on a financing plan to help you pay off your loan without borrowing more.
Rule #2: Read Your Terms and Conditions
Your terms and conditions share crucial details of your loan. They define your rights and obligations as a borrower by outlining important things like:
- Interest rates, fees, and other possible charges you may encounter
- Expected payment sizes and their due dates
- Any other requirements that may affect how you manage your account
Having a thorough understanding of these details will help you determine if an installment loan is affordable before you borrow it. This helps you spot red flags and shop around for something that better fits your needs.
One such red flag is a contract that is needlessly complicated; if you reread your terms and conditions several times and still have no idea what they mean, that’s likely a tactic taken by lenders to conceal hidden fees.
You don’t have to stick it out with these confusing terms. Other lenders like MoneyKey communicate with clear and concise language. You can visit Moneykey.com to see it in action without even having to apply for an installment loan. Their website gets straight to the point about how these personal loans work in a way that’s easy to follow.
Rule #3: Treat it Like a Non-Discretionary Expense
A non-discretionary expense is an essential bill you must pay to live a safe and healthy life. Rent or mortgage payments, utilities, and groceries are some of the most common non-discretionary expenses in the typical budget.
You may have more depending on your lifestyle, but generally, they’re the purchases you can’t afford to skip without serious consequences.
If you take out an installment loan online, add your payments to this list. It is a non-discretionary expense because of how important it is to your financial health during the duration of your term.
Approaching your installment loan this way helps you commit to making your payments on time, provided you remember this rule:
Never prioritize your installment loan over other essentials.
Repaying your loan is a balancing act where you successfully juggle all your bills at once. If you can’t pay rent, utilities, groceries, and other necessities on top of your installment loan, this may not be the best loan.
Rule #4: Reduce Non-Essential Spending
Slot your loan payments into your budget and see how it affects your cash flow. Ideally, you’ll have more than enough cash on hand to cover each payment (on time) as well as your other expenses. But it’s okay if it cuts into your normal spending habits — to a degree.
If you come up a little short of what you need, evaluate the rest of your budget. You might find non-essential spending that ties up your cash.
Cut out some or all of these expenses, and you’ll free up more money to put towards your payments.
- Takeout
- TV, food, clothes, and beauty subscriptions
- Online shopping
- Decorations and cosmetic renovations
- Plants and gardening upgrades
- Vacations, entertainment, and experiences
While looking for expenses to slash, remember to stick with the non-essentials. You shouldn’t have to put necessary bills on hold in order to afford your repayments.
Rule #5: Make Additional Payments
With a few deft cuts, you may free up more than enough cash to cover your monthly payments. But before you splurge on something fun to celebrate, think about using it to make an additional payment.
Additional, early, or pre-payments consist of extra cash you put towards your total owing on top of your scheduled payments. They may help you pay off what you owe faster.
But before you slap down your money, refer back to your terms and conditions. Was there any mention of making pre-payments? More specifically, are there any penalties for making additional payments?
Look carefully. While some responsible lenders will encourage you to make additional payments, others will apply a fine for anything above and beyond your scheduled payments.
Bottom Line
When it comes to running a household, unexpected expenses are par for the course. Things break down, and when they do, they cost money to fix. If your emergency fund falls short of what you need, an online installment loan may bridge the gap between your paycheck and your bills.
While borrowing money may feel like the natural course of action, don’t take it for granted. Use the information you find in your terms and conditions to see if an online installment loan fits your budget. From there, tweak your spending to ensure you’re setting aside enough money each month to cover your payments.
Simple tasks like these can help you pay off your installment loan with less stress!
