Types of military loans

Whether it's for car repairs, travel, or other unexpected bills, when service members need immediate money their options are often limited, due to time constraints, lower-than-average pay scales, and a mobile lifestyle caused by deployments, training, and frequent moves. Since many times it is hard for them to obtain traditional financing, many military families use a credit card, borrow from family members, or obtain a payday loan.

What about payday loans?

Payday loans, which charge from $15 to $30 per $100 loaned, have a few major flaws, as noted in several studies by the Center for Responsible Lending (CRL). When factored as an annual percentage rate (APR), the fees are 390% or more. Based on briefs by CRL, the average payday borrower pays $800 to borrow $325. A payday loan can be "rolled over" or "flipped" if it cannot be repaid, increasing the effective APR and starting a financially dangerous cycle of debt.

What about credit cards?

One financial myth is that "low cost" credit cards are better than "more expensive" installment loans. Typically, a minimum credit card payment represents 3% of the balance. Statistically, that means 85% of the payment is paying interest and only 15% is going towards a reduction in the loan balance. Let's say you had a $1,000 credit card balance with a 12% interest rate. By paying the minimum due (three percent of your account balance, or $30), it would take you eight years -- a total of 96 payments -- to pay it off! You would have paid $407.48 in interest.

Installment loans for the military

Installment loans are the responsible choice. A good lendor will ensure that your payments are manageable and have no hidden fees. For instance, Pioneer Military Lending installment loans have a fixed payment and terms, which provide you with a lower total cost than credit cards or payday loans. An installment loan—even one with a subprime rate—can be a more responsible alternative to emergency cash needs than either a payday loan or a credit card. Installment loans also encourage financial discipline.