An installment loan is a type of loan you pay back in set monthly amounts, or “installments”. Many people use them, even if they don’t have the best credit. Even with a low credit score, you can still get installment loans.
These loans are pretty popular. For example, about 27.5% of American adults had at least one installment loan during the third part of 2020, as stated by the Federal Reserve Bank of New York.¹ Instead of paying everything back immediately, you make planned payments over time. There are also many installment loans available online.
There are various types of online installment loans, each with different interest rates and conditions. These loans can be for businesses or for personal use. But in this discussion, we’re focusing on personal installment loans. So, if you’re thinking about getting a car loan, house loan, home equity loan, or online loan, it’s good to understand how these loans work.
Types Of Installment Loans
There are several kinds of installment loans, including:
- Personal loans
- Car loans
- Home loans (Mortgages)
- Loans for school (Student Loans)
- Loans based on home value (Home equity loans)
- Loans to combine debts (Debt consolidation loans)
Each loan has a different use, and the rules, conditions, and needs for getting one can change. For instance, people with good credit might get approved more easily, borrow more money, or pay less interest than those with not-so-good credit.
A personal loan where you get the money all at once and then pay it back in set monthly amounts is called an installment loan. This is true for both online and face-to-face loans.
Some installment loans are made for people with not-so-good credit. These are sometimes called “bad credit loans.” They might be a better choice than payday or title loans. You can find these loans both on the internet and in stores. Always carefully check out an online loan just as you would with one you get in person.
Benefits of Online Installment Loans
- Consistent rates: You know the interest rates upfront, so no surprises.
- Easy-to-plan payments: It’s simpler to set money aside for monthly payments.
- Boosts credit: Paying on time can help fix bad credit.
- Useful for big buys or combining debt: You can use the loan for many things, including putting all your debts into one.
- Better borrowing costs: These loans can be cheaper than other short-term loans.
- Yes to those with not-so-great credit: Some lenders focus on whether you can pay back, not just your past credit mistakes. Some even specialize in helping those with bad credit.
Disadvantages Of Online Installment Loans
- Risk of repossession: If you don’t pay a secured loan, they might take what you used as security.
- Long-term financial commitment: You’ll be paying back the loan for a long period.
- Extra charges: If you pay early or miss a payment, you might be charged more.
- Costs more for those with bad credit: If you have a low credit score, you might be charged more interest or not get approved.
Choosing an Online Installment Loan Provider
When searching for the right online installment loan, it’s crucial to check out several lenders to get the best deal, especially if your credit isn’t perfect. Many places offer installment loans, including banks, credit unions, online-only lenders, and some online peer-to-peer platforms.
When looking at different online lenders, think about the Annual Percentage Rate (APR), how long the loan lasts, how you pay it back, and how helpful they are to their customers. Finding a lender with a fair interest rate and terms that work for you is good. Also, see if they let you set up automatic payments, so you don’t forget and end up with extra fees. And remember to ask about any costs tied to how you pay, whether that’s online with a card or bank account, in cash, or by check.
By carefully checking out different lenders and finding the right loan for you, you can get the money you need and pay it back without too much stress.