An installment loan is a loan meant to be repaid in scheduled installments over a certain period of time. These loans can be commercial or personal and secured or unsecured. Here are four interesting facts about installment loans.
1. Common Uses
Installment loans used for commercial purposes typically involve furthering your career, such as paying for coding classes, or funding something for your small business, such as new equipment or facilities. There is a bit more variety when it comes to personal installment loans. Mortgages and auto loans fall into this category, as do payday loans and student loans. You can also apply for personal loans for other reasons, such as paying for medical bills or a large event. Installment loans may be secured, which means the lender requires collateral, or unsecured, which means the lender forgoes collateral and uses your credit history to determine your level of risk before deciding whether to approve your application.
2. How To Apply
To apply for an installment loan, you need to fill out an application as you would for any loan. You can do so with any number of lenders. The lender you choose may depend on what you’re planning to use your installment loan for and how quickly you’re hoping to be approved. For example, a bank such as Wells Fargo may take more time to approve your application but is more reliable for student and car loans, while an online lender such as MaxLend is ideal for quick funding needs such as medical bills.
3. Advantages And Disadvantages
There are several advantages and disadvantages associated with installment loans. These loans tend to be predictable because payments are scheduled to occur monthly, so they’re easy to plan around. They also tend to have fixed rates and relatively high credit limits. However, they can have higher interest rates than other types of loans and tend to lack flexibility in terms of payments, making it difficult to recover from a missed or late payment.
4. Effects on Credit Scores
An installment loan can positively or negatively affect your credit score in three ways: credit utilization, credit mix and payment history. Credit utilization is a ratio determining how much of the money in a loan you use at once. If you use too much, you can be considered a risky borrower because lenders will consider you to have too much debt. Your credit mix refers to what kinds of credit and loans you have in your credit history. If you have none, then lenders won’t know what kind of borrower you are. If you have too many, then lenders may see you as too much of a risk. Payment history tends to be the most important factor in determining someone’s credit score. Making appropriately sized payments on time each month improves your score because you’re seen as a responsible and low-risk borrower.
When a Financial Crisis Strikes:
No matter how financially stable you are, you can find yourself in a crisis. When emergencies hit, getting a loan may be your only option. As far as choices go, it’s not necessarily a bad thing.
Sure, being in debt is no one’s preference, but if you choose carefully, your loan doesn’t have to be a financial nightmare. Monthly installment loans are a safe way to borrow money when something comes up because you know what you’ll be paying and when it will be paid off.
These types of loans have other benefits, too. Here are 4 advantages to monthly installment loans that you may not have known.
4 Reasons to Choose Monthly Installment Payments as Your Next Loan
1. Your interest rates are fixed, not variable.
Variable interest rates may sound appealing at first when the initial annual percentage rate is a low number, but when it spikes, your monthly rates do, too. Fixed interest rates ensure that you know what your monthly payment will be and how to budget accordingly for it. These are safer loans than lower payments for a while, higher payments for a while, and then lower again. The uncertainty is difficult to plan for.
2. Installment loans offer longer payoff terms.
Monthly installment loans have flexible initial terms. If you need a lower monthly payment, you may be able to qualify for a longer amortization, or payoff period. If you want to hurry and get the loan paid off quickly, you can opt for a shorter payoff period.
3. These types of loans usually mean you get your money quickly.
If you need money fast, an installment loan is a way to go. In many cases, you can even apply online for your loan and find out within minutes if you are approved. Depending on the lender and your requested loan amount, you may be able to receive your funds in as little as 48 hours.
4. The approval process is less stringent.
If your credit is less than perfect, you can still likely qualify for a monthly installment loan. You may have to do your research to find one that will accept your credit, give you the amount of a loan that you need, and still offer reasonable rates. Check the fine print, too. You don’t want to be stuck paying extra fees that were not explained to you up front just because your credit is suboptimal.
Financial Crises Can Happen to Anyone
If you are in the market for a loan, whether it is for renovations, a doctor’s bill, college admissions, or any other important or unexpected reason, it doesn’t have to be a stressful time. With a bit of research, a little work on your part, and the right lender, you can have your money quickly and know what to expect to pay monthly and for how long.
Choosing a monthly installment loan can be a smart financial way to make lemonade when life hands you lemons. Let the recipe for lemonade be in your hands by going with a reputable lender and monthly installment payments.
Installment loans can be used for a number of reasons. You should consider why you want to apply for a loan and research whether an installment loan is the right type of loan for your needs before you make any decisions or submit any applications.