Installment loans provide a financial option for when you don’t have the savings readily available or find yourself in need of funds quickly for a variety of reasons. An installment loan is a fast and easy way to borrow and doing so online can provide the money you need quick.
What Are Installment Loans?
An installment loan is very similar to a personal loan. While a personal loan might allow for a larger amount to be borrowed, and sometimes over a longer term, both have regularly scheduled payments based on a fixed amount as outlined in the loan agreement.
Installment loans typically have longer repayment periods and lower interest, making installment and personal loans better than payday loans when borrowing. Many other types of unsecured loans with regular payments are also considered installment loans, including auto loans and mortgages.
Within Canada most banks are credit unions do not use the phrase ‘installment loan’ and offer personal loans instead, but they are virtually the same, with slightly different terms. To qualify for an installment loan or personal loan at the bank you would require a good credit score for any chance of being accepted. Many online lenders offer comparable terms and often better rates as they have less overhead, allowing them to pass the savings on to the consumer.
What Can I Use Installment Loans for?
An installment loan can be used for practically anything, like most unsecured loans that do not require collateral. From overdue bills or emergency expenses to home or car repairs, travel, debt consolidation and more. Some people will use installment loans as a way to build their credit score in cases where the lender reports their positive payments to a credit bureau. In many cases people will use installment loans for large purchases, which can be a better option than a credit card, line of credit or even buy now pay later options.
How to Choose an Installment Loan
When comparing your options for an installment loan, sometimes you should look past the APR and consider other things that can impact your cost of borrowing. The APR is the annual percentage rate and would factor in additional fees that may be involved. Within Canada a lender is legally required to provide the APR within the loan agreement, which you are able to review before signing a loan agreement. This is determined by the amount borrowed, the total finance charge, and the length of the loan term.
When reviewing your loan options, rates available and the terms, you should also look at any fees or penalties outlined in the loan agreement. Now you know that the lowest interest rate does not ensure the best option available.
RELATED: Personal Loans – Short vs Long Terms
Finding the Right Installment Loan
Using the following suggestions can help you to identify what your best options might be for choosing a lender for installment loans:
- Look at the APR, not just the interest rate
- Review the eligibility requirements, not all lenders are the same
- Be aware that longer terms mean that you will likely pay more interest
While it would be ideal to pay off an installment loan or personal loan as quickly as possible, presuming it does not have prepayment penalties to be concerned about. But when exploring your options for an installment loan, it also needs to comfortably fit within your budget. If taking out a loan will make your finances ‘uncomfortable’ and not work with your budget and expenses, this would be one of those moments that might require longer loan terms to be considered.
Would I Be Approved for an Installment Loan?
The criteria isn’t difficult, provided that you are employed. In some cases a lender will consider other regular sources of income such as benefits and similar for some types of loans. Additionally, other requirements typically include being a Canadian citizen with an active bank account.
Depending on the lender, some will look at your credit score when applying, and if your score is low you might not qualify. Generally, those with a good to great credit score would be eligible for personal loans with preferred interest rates. Those with fair to good credit scores would be more suited to installment loans, and those with bad