With most people aware of the preposterous debt burden that payday loans can pile on, countless individuals are turning to installment loans as a safer alternative. But are installment loans really any better?
Both types of businesses are actually considered high risk and need special high risk merchant accounts. Yes, even installment loan lenders need to go through particular installment loan merchant account providers for payment processing. Why is this so? Well, let’s take a closer look an installment loans and see how they stack up to payday loans.
First, what exactly are installment loans?
Installment loan lenders have deemed their kinds of loans as the safest type of credit for consumers. Presumably this is because, unlike payday loans, which you are expected to pay in full within a short amount of time (otherwise additional loans, fees and interest are to follow), installment loans are paid back little by little over a longer time period with set scheduled payments.
Do installment loans build credit?
Defenders of installment loans like to point out that the lenders do report to credit bureaus. This means that, yes, showing that you have consistently made your loan payments on time can help your credit score if it was a little shaky beforehand.
What’s the dark side of installment loans?
Installment loans are riskier than you might think. Just like with payday loans, there are a number of sneaky and deceptive devices that installment loans use to milk as much as they can from the borrowers. The rates can be extremely excessive and there can be hidden fees and products added on plus loan flipping and other fraudulent gimmicks.
These things all can add up to be just as bad or even worse than payday loans since installment loans generally deal with more money from the beginning. But even a loan for a modest $200 can mean eventually paying the lender back close to $250. When you think about it, that’s an enormous increase percentage-wise. It’s way more than you would pay using a credit card with an average interest rate.
Installment loan borrowers forced to renew over and over?
You might be surprised to learn that, even though an installment loan is often looked at as a one-time solution for money, the lenders’ goal is to see consumers constantly refinance. Just like with payday loan lenders, installment loan companies encourage borrowers to roll over their old loans into new ones. Rather than have borrowers fully pay off their loans, getting them to do a loan renewal is more beneficial for the loan company.
The reason for this is not only do you keep paying the lender interest, but also it’s actually higher interest than it would be towards the finishing payments. Why? The payments are designed in a way that you pay heavier interest with the beginning installments. In other words, if you keep refinancing you’re going to be mostly paying off interest and not even making a dent in the principal. Undoubtedly, it is not a great move to get out of debt.
The bottom line is that both payday loans and installment loans are considered risky businesses.
Even so, there are ways to find installment loan merchant account providers. A good place to start is with Ultimate Merchant Providers. They make getting a high risk merchant account easy.