With so many loan options available today, it can be hard for consumers to decide on the best option for their particular situation. For short-term funds, payday loans can be a good option, and borrowers may even seek out title loans when they need larger sums quickly. For those who are looking to make a big purchase, such as a vehicle or a major home repair, an installment loan may be the right financial product.
What is an installment loan?
For those looking to make a big purchase but find themselves short on cash, installment loans may be a good option. They are typically offered in higher amounts than what you can obtain from a payday loan. Another benefit of installment loans is that they allow borrowers to make a set payment each month that doesn’t fluctuate. Stable payments lower your risk of defaulting on the loan, because you know upfront what you will be paying and you can budget accordingly. Other forms of lending may have varying interest rates or different payments over time, and this can create problems if you’re not careful.
Installment loans differ from revolving lines of credit and credit cards, because they are stable over time and are usually granted for a specific purpose. Much like payday loans and other community lending products, installment loans may be easier to get approved for, even if you have damaged credit. Some lenders require collateral for an installment loan, and borrowers may be asked to put up their car or house as collateral. In many cases, however, no collateral is required.
Finding an installment loan lender
Lenders typically allow borrowers to apply online and submit documentation either online or via secure fax. Typically, borrowers must submit proof of income, residency, and an active checking or savings account, and some lenders require no prior history of default with them.
Finding a reputable lender does not have to be difficult, but it is important to do a bit of research before applying for an installment loan. Search the Internet for reputable installment loan providers, and read about their products on their websites. Take notes and compare the benefits and drawbacks of each lender’s product. You can also read online reviews, preferably outside of the lender’s site. Message boards are an excellent way to get opinions from actual borrowers who have dealt with a specific lender, too. If you feel comfortable doing so, you may also want to ask family and friends who have taken out an installment loan in the past. These real-world testimonials can help make the decision that much easier.
Installment loans and your credit
Taking out an installment loan, even with bad credit, can be a good way to improve your credit standing over time. If you already have revolving lines of credit, adding an installment loan can serve to diversify your credit profile and may raise your score, since using different types of credit tends to increase credit scores.
While there are certainly many installment loan lenders for people with average or good credit, there are also a variety of options available for those with lower credit scores as well. The benefit of installment loans for less-than-perfect credit is twofold: borrowers are able to make much-needed purchases while also helping to improve their scores. As long as the lender reports to at least one of the three major credit bureaus (Equifax, Experian, and TransUnion) and the borrower makes timely payments, an installment loan can improve the borrower’s score in the long run.
Once you make the decision to apply for an installment loan, be sure to consider all of your available options. Be mindful of the interest rate, as well as the amount of time you have to repay the loan. It may be tempting to extend the loan out as far as possible, but be sure that doing this will not cause undue hardship in the future. Extending your payment timeline also affects the total amount of interest you pay over the life of the loan, and will cost you more money in the end. It can be a good idea to utilize online interest calculators, so you have a clearer picture of how much you will be paying back. Carefully review any loan documentation you receive to be sure you understand any associated fees or restrictions you may be subject to.
Installment loans are a worthy financial tool to use for big purchases, and they serve to free up money that can be used for everyday expenses. Provided you do your research, there is likely to be an installment loan option available for your needs.
