Let’s be honest here: Not everyone can finance a single big purchase, such as their dream house or the car they badly need. Some people find it hard to apply for loans, qualify for better deals, and even afford good facilities because of their low credit. You don’t have to worry, though, because here is where installment loans fit in the picture.
Whether you need to build your credit, borrow fast cash, or settle your other debts, installment loans online can get you covered. Below are things you need to know first before considering to venture out for installments.
What Do We Mean If We Say Installment Loans?
Installment loans refer to any loan paid back by a consumer in a regular interval over a period of time. Generally, it is an amount of money borrowed, usually a lump sum, to cover the borrower’s big purchases such as buying a vehicle or a house, support their child’s college education, or simply fund their everyday expenses.
These are especially ideal for those who want to build a better future for their family and themselves but can only do so with the aid of financial assistance. Most commonly, banks and credit unions offer loan installments, but they are now available online. Installment loans online give many benefits, from easy access to fast transactions.
Paying for an installment debt includes the principal amount borrowed and its corresponding interest. Take note that the interest rate depends on the type of loan you apply for, but installment loans usually have lower rates.
What Types of Installment Loans Exist?
You may have heard or even used some of these examples but are unaware that they are types of installment loans. So what exactly are the common types?
1. Personal Loans
One advantage with personal loans is that they generally don’t require you to put up collateral, like your house or car. Unlike any other loans such as mortgage or auto, they can be used for various purposes – whether you want to consolidate debt, pay unexpected bills, repair your car, renovate your home, plan a vacation, you name it .
One consequence, though, is that they tend to have higher interest rates than secured assets (such as home equity loans), but this still varies depending on your credit.
2. Mortgage Loans
Mortgage loans are typically used by borrowers who want to purchase a house. This is a type of secured installment loan where the house is the collateral itself, which means that if the borrower cannot make monthly payments or defaults on the loan, the lender can take the home and sell it to regain the money lost.
They are usually long-term installments and have lower interest rates compared to personal loans. It is advisable that you pay 3 to 20 percent from the total loan amount as a down payment as it represents how much you invested in the home and will make you look good in your lender’s eyes.
3. Auto Loans
Like mortgage loans, auto loans are also secured by collateral and down payment. Only this time, they are used for purchasing a new car. Since this is a collateralized loan, lenders are guaranteed a physical asset they can forfeit if the borrower cannot pay for his monthly dues.
While auto loans are beneficial if you need immediate access to a car, a “buy now, pay later” scheme, there are still some cons you might want to be aware of, such as interests and fees. In some cases, the value of a car depreciates over time, and it might be that once you’re off the loan, you might have paid a little over what it’s worth.
The three types of loans mentioned above are the most common, but you might also encounter student loans, which is an ideal option for supporting higher education, and payday loans, a short-term loan that usually helps you get by until your next payday.
What makes Installment Loans Different From Payday Loans and Revolving Credit?
These terms are confused with one another most of the time. The great difference between them is that payday loans require you to pay the full amount you borrowed by the next payday. In contrast, installments allow you to pay them in a regular interval, usually by month.
Compared to revolving credit, like credit cards, you cannot add to your balance with installment loans. In other words, your installment loan account closes once your balance reaches zero or when you already paid your debt. With revolving credit, you can borrow the money again and make new charges in your credit line once it is paid off.
You just have to be careful with your fees and interests as some revolving credit lines require a commitment fee, and interest rates may be higher.
Why Do I Have to Apply For Installment Loans?
Aside from it being a better option if you need fast cash, installment loans offer various advantages that make them more appealing to most consumers. Some of these reasons include:
- Monthly payments are manageable
- Usually have fixed interest rates
- Helps you build a good credit
- Perfect for everyone and every situation
Opting for an installment loan is wise and probably the best decision for consumers who have big dreams like you, regardless of your current credit score. As long as you pay your dues on time, making sure that you have the capacity to pay in monthly installments, you are good to go.