An installment loan is a loan that can be repaid in equal amounts for an agreed period. This amount is repaid on a monthly basis until the loan is paid in full. There are several types of installment loans and they include auto loans, signature loans, and personal loans.
With installment loans, the rate is fixed and you will be making the same monthly payments throughout the loan period. With fixed installment loans, you can easily plan your finances every month since you know how much you will be paying every month.
Installment loans have several benefits over other loan types such as payday loans. They include the following.
You can use installment loans for everything you need. The loan is flexible and you can use it for major renovation projects, consolidate your debt, pay your bills, purchase homes, and make huge purchases.
Installment loans are spread over a long period. The monthly payments are decided based on your ability to pay. This makes them affordable for you to easily pay them. You do not need to worry about struggling to make huge payments. At least you will not miss payments if you plan your finances well since the loan payments are manageable.
Payday loans and credit card cash advances are also fast loans and they are easy to get just like installment loans. However, installment loans have more advantages over payday loans and credit card cash advance. The rates on installment loans are lower since you will repay the loan over a longer period.
They are also more convenient compared to traditional loans. You can apply for this loan from the comfort of your home and the application forms are short and precise. You will not get this kind of convenience when you apply for a traditional loan.
Installment loans are available for people with both good and bad credit. This is because this loan is offered by traditional banks, credit unions, and private lenders who are mostly online. If you have a bad credit, you are likely to get a loan from online lenders.
Such lenders have loans designed for people with bad credit. The application process is simple but the rates are higher than loans offered by traditional banks and credit unions. The good thing about this loan is that you can get the loan faster than all other loan options.
There are many important things to consider when you want to get an installment loan. You will first need to consider the amount you are getting. The amount available for installment loans ranges from a couple of dollars to thousands of dollars.
Some lenders will be willing to offer you more than you actually need. Do not be tempted into getting more. Make an estimate of what you need the cash for and then apply for that exact amount.
You should also look at the rates offered by the lender and ask yourself if that is the best rate available for the installment loan you need. Consider the loan term as well. One thing to think about is how long you want to pay for the loan.
You may want to pay for the loan within a short period or otherwise. That will be influenced by your financial circumstances and your financial goal. If you manage a large payment, it will be best to opt for that, at least you will get out of debt faster.
When you apply for installment loans you must be wary of the following risks. One of the risks associated with installment loans is late payment. Late payments can attract fees which are sometimes huge and this can burden you financially.
Late payments can also affect your credit score. Lenders sometimes report missed payments to credit reporting companies who will also indicate them on your credit report.
Missing payments on numerous occasions can be very bad for your credit score. It can also pile up the debts. Most people who miss payments on numerous occasions end up taking extreme measures to get rid of their debt. The lender may even get a debt collection company to come after you for you to settle the debt.
Another risk that is associated with installment loan is prepayment fees. Some lenders will charge this fee if you decide to pay off the loan earlier than scheduled. They use this fee to cover the amount the will have lost on interest when you pay earlier. Fortunately, not all lenders charge prepayment fees.
Installment loans are good loan options when you need cash to deal with an issue. However, many people tend to encounter problems after applying for installment loans. Some end up accumulating more debt. This is mostly because they did not manage the debt well. Here is how to manage your online debt so that you can maintain a good reputation with your lender.
Do not take an amount whose monthly payments is more than 10% of your income. Already, you have several responsibilities, you will need to pay your bills, food, clothing, and several other things. It is even difficult to cough up 10% of your income for loan payments but that will be easy to manage.
You should consider setting up an automatic payment so that you can easily pay your debt without taking action. You will not need to worry about going to the bank to make payments or issuing a check every month.
Remember to compare loan rates before you even choose a lender.