Installment loans are often used to fund significant asset purchases, such as vehicles, homes, or other important investments. It is a lump amount of money that you borrow and return in installments over a period, which is often months or years, depending on the lender.
These loans may either be secured with collateral or unsecured loans. Installment loans vary from revolving credit, such as credit cards or home equity lines of credit, in which you borrow the money all at once, rather than in installments over many months. They also allow you a long time to pay back the loan.
Find out more of what you should know about these kinds of loans before you apply for one.
Types of Installment Loans
Personal loans are short-term installment loans that may be utilized for any purpose. The loan amounts range from $1,000 to $100,000, with typical repayment durations of two to seven years.
Auto loans are a type of secured installment loan where you make monthly payments plus interest for two to six years to repay the car's cost. If you don’t pay your car payments promptly, your lender can repossess your vehicle.
Student loans are installment loans since they must be paid back in regular payments. The interest rates on these loans vary depending on the lender, and they typically include a grace period when interest accumulates, but no monthly payments are required.
Home loans are installment loans where the house’s value is borrowed, and the loan is repaid with interest in monthly installments over 15 or 30 years, depending on the loan type. This is because the house secures the installment loan, and if you miss too many payments, you run the danger of losing your home.
Installment Loans’ Impact on Your Credit Score
Installment loans typically need a thorough credit check, which may result in a temporary decrease in your credit score. Installment loans may also help you build credit if you pay them on time.
Highly regarded lenders notify one of the three main credit agencies (for example, Equifax, Experian, and TransUnion) of payments that arrive on schedule. Paying installment loan payments on time boosts your payment history, accounting for 35 percent of your credit score.
The consequences of non-payment or late payment may be severe. An overdue payment may result in a penalty of 50 to 100 points being removed from your credit score.
Thankfully, most lenders let you set up automated payments, especially now that touchless payments are more prevalent, which reduces the burden of remembering to pay.
How to Obtain an Installment Loan
Pre-qualifying for an installment loan is the first step to your application. When you are pre-qualified for a personal loan or pre-approved for a mortgage, you may examine possible loan amounts, interest rates, and monthly payments without having to worry about your credit score being affected. You may then determine how the payments will affect your financial situation.
You may also compare what different lenders may offer in terms of installment loans. Lenders evaluate your loan application and assign a rate in a variety of ways. Additionally, review other financing options, such as low-interest credit cards or lines of credit, which may be less expensive for big purchases.
You may also choose to boost your application by considering taking a joint or co-signed installment loan or securing an unsecured loan with security before you submit your application. These choices may help you qualify for a loan or get a cheaper interest rate or a more significant loan amount.
Just be aware that there are ramifications if you cannot repay the loan: your co-signer will be held responsible, and the collateral may be seized.
Installment loans are available from various sources, including banks, credit unions, and internet lenders. The amount of time it takes to apply for a loan varies depending on the lender’s kind of loan. Most online lenders are usually the quicker option.
There is such a wealth of things to learn about installment loans. It may seem daunting, but taking the time to learn more about it will undoubtedly help you in your application. For others who may not have the time, professionals are always ready to help!
First Finance Company understands the time-sensitive need for help when you’re short on funds. We pursue same-day installment loans in Davison, guaranteed to come with straightforward repayment arrangements. We make sure that you have access to the help you need. Start your application online or call us at (615) 488-3698 today!