The installment loan is a simple concept you are probably familiar with already. Much like a personal loan, it’s where you have agreed to the terms of predetermined repayment amounts, dates, fees or interest, and receive a lump sum amount of money to borrow. This occurs over a fixed term, and as you continue to pay down the monthly amounts, the total amount owed decreases.
Examples of installment loans would include auto loans, mortgage, along with types of personal loans as well as student loans.
How Installment Loans Are Different to Personal Loans
While an installment loan and personal loan might seem very similar, they are in fact different in a number of ways.
With Installment Loans, the repayment term is usually shorter, the interest rates or APR is sometimes higher. This type of loan might be an option for someone that doesn’t prequalify for a personal loan.
With Personal Loans, the repayment terms can often be 3 to 5 years, and the interest rates or APR are often better. Usually a credit rating of fair to good is required to qualify.
How to Get Installment Loans
Generally, there are certain requirements to qualify. For larger sums of money you typically need a good credit score to be approved. With installment loans you can only borrow a few thousand in most cases, and beyond that you may need to qualify for a personal loan.
Many lenders of installment loans often have similar requirements, with the more common ones being that you need proof of a regular income, valid identification, an active bank account, and be at least 18 years of age and a citizen to apply.
Things to Know About Installment Loans
The first thing you should be aware of is the APR, or Annualized Percentage Rate. This helps you determine the cost of the loan. Note that some lenders may include fees, like an origination fee, in the APR. An origination fee is what is charged by some lenders for processing an application.
The term of an installment loan is the length of time that is requested for it to be paid back by. This determines how expensive it might be to you, since loans of a shorter term length tend to cost you less, whereas a loan of a longer term would have lower monthly payments but cost more.
Every lender tends to have different terms of the agreement, so keep an eye out for things like flexible payment dates or early repayment penalty fees.
One thing to keep in mind is not to be tricked by lower payments. While it may sound appealing, you could in fact be paying considerably more for the loan over the long run. You should always try to go with the shortest term loan that you will be able to afford.
What To Use Installment Loans For?
These types of loans are generally available to you for just about any legitimate purpose. You might have necessary car repairs, medical expenses or even overdue bills to take care of. Since you can use them for just about anything you choose.
What Are The Benefits of Installment Loans?
With a quick and easy online application process, installment loans are a great way to get quick cash when you need money now. Many are unsecured, depending what you apply for, and often have quick approval and funding processes. With many installment loans having flexible criteria, variable fees and negotiable repayment terms, they can be a great borrowing option. Even those on social assistance can qualify for loans that accept benefits as an alternative income.
What If I Don’t Qualify for Installment Loans?
If you have bad credit and are told by lenders that you do not qualify for personal loans or installment loans, then you still have the option to consider applying for payday loans online. Since installment loans are repaid with multiple monthly payments, if you have a bad credit history you may find lenders don’t want to take a chance on you for installment loans, but would allow you to borrow a smaller amount, often in the form of online payday loans for bad credit at times. These are usually higher interest and require repayment in full on your next payday, but if you need money fast and the other loan types are not options, this would be one to consider. If it isn’t an emergency, it’s recommended that you focus on improving your credit score so you can get a loan with better rates and terms.
RELATED: How to Get a Loan with Bad Credit
What to Watch for When Looking for Installment Loans?
Since some people that have bad credit that might not be eligible for the preferred rates of a bank will look for direct lenders online, an installment loan is sometimes merely a repackaged pay loan that can seem appealing to those who have trouble getting approved.
Things to keep an eye out for can include;
- If the lender allows you to renew or rollover a loan because you can’t repay in time. This is best avoided as it can cause you to fall into a cycle of debt.
- Any sort of mentions of guaranteed approval would be red flags and another tactic that some lenders use to attract prospective clients.
- Any upfront fees before a loan is disbursed is another cause for concern
Other concerns can be if the lender approached you, pressure you to borrow more than you may have asked for, or even proposing types of insurance or add-ons that suggest they might protect you, when sometimes these are additional fees and a way to get around state regulations on how much they can charge, which they must declare.
Always read the terms before signing as this can reveal any surprises or hidden fees, which lenders are required to provide upfront.