Installment loans enable borrowers to take out a one-time, fixed-amount loan that can be paid back over time. These loans often have set interest rates and regular, recurring monthly payments that don’t change. Each monthly payment is divided into two parts: the principal (the amount borrowed) and the interest (the cost of the loan).
Installment loans are different from credit cards or lines of credit in that they frequently feature more flexible repayment terms and variable interest rates, which means you can’t count on a regular monthly payment. When you have an intallment loan site, you always know when your monthly payment is due.
Types of installment loans
Installment loans come in many forms. Although they operate similarly, each type comes with different features, loan purposes and average interest rates.
Personal loans
A personal loan is money provided by a lender that can be repaid in monthly installments over a fixed period at a fixed interest rate. These loans are available from online lenders, private lenders and credit unions.
The proceeds from a personal loan are provided in a lump sum and can be used to fund various needs.
“A personal loan can be a great financing option for consumers looking to budget a wide range of expenses from car repairs to home improvements,†says Mark Victoria, head of unsecured lending for TD Bank. “A very common and effective use of a personal loan is to consolidate higher interest credit card debt.â€
The repayment terms for personal loans usually range from 24 months to 60 months, but some can go as high as 72 months.
No-credit-check loans
Payday lenders often provide no-credit-check loans that don’t check your credit score before lending money. Payday loans are intended to help consumers during an emergency or when they don’t have another source of credit. The amount of a payday loan is smaller than a personal loan, often limited to about $500.
Payday loans are often short-term, high-cost loans. When applying for these loans, your credit score does not matter because your paycheck is used as security against the amount borrowed.
When approved for a payday loan, you give the lender a postdated check for the amount being borrowed plus any fees. The lender holds onto that check and gives you cash. On your next payday, the lender cashes the check you provided.
If you take an online loan, you authorize the company to take the funds from your bank account on your next payday once your employer has paid you.
Do you need to get an installment loan?
If you are deciding to take out an installment loan, you should consider the pros and pros and cons. If, for instance, you believe that one installment loan can help you to pay off your high-interest debt then taking out this type of loan may be an excellent option. If you would prefer a monthly fixed installment, it might be more beneficial instead of an credit line or card of credit.
If, however, you have bad credit, taking out an installment loan may not be the best option unless you are able to secure an cosigner with good credit to potentially get an interest rate that is lower. If you’re interested in taking out loans in a sporadic manner and not on a regular basis, the installment loan won’t be your most ideal choice.
If you decide to take the route of an installment loan is the best choice for you, be sure you have the funds to pay off your debt promptly. If you fail to pay back the loan, it can be a major blow for the credit score, affecting the ability to get credit at a later date.
Where to find an installment loan
Installment loans are available via a bank credit union, or online lenders, however each has its own advantages and drawbacks to be aware of.
Banks are much more accessible than credit unions because they don’t require members to be able to access loans. However, they do have stricter lending requirements.
In addition, you’ll obtain a lower rate when you use the help of a credit institution or an online lending company because they are less expensive to run. Online lenders have the ability to streamline their application process, quick approvals, and quicker time to fund because all of the processes are automated. However, you don’t have the privilege of going to the branch and talking to an agent face-to-face, as you’d do with a traditional branch of a bank, or credit union.
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