Resolving your financial issues using your emergency fund is always preferable to borrowing money. However, even an emergency fund, assuming that it hasn’t been previously depleted, can be stretched ever so thin before it eventually runs out.
The unexpected nature of life may require you to occasionally search elsewhere for cash resources. While you may dislike the idea of borrowing money, some people have come to appreciate the value of installment loans.
However, not all personal installment loans are created equal, and in this guide, we’ll discuss what installment loans are, what are some of the most common types of installment loans, and how to apply and obtain an installment loan even if you have a poor credit score.
What Are Installment Loans?
Installment loans are personal loans that imply borrowing a lump sum and paying back in smaller increments over time, usually through monthly payments until the loan has been paid back in full. These are usually preferable funding options for covering various types of expenses since they usually come with significantly lower interest rates compared to credit cards or unsecured loans.
Installment loans are usually used to cover financial needs and emergencies, such as employment termination, debt consolidation, vehicle repair, large purchases, and medical bills or moving expenses. Installment loans come in numerous forms, but nearly all of them work as typical personal loans in which lenders lend you the money, and you repay the loan in fixed monthly installments.
It’s worth mentioning that some companies offer loans to borrowers with poor credit scores, which usually come with certain requirements and restrictions, such as more strict repayment terms, higher interest rates, and perhaps additional fees or penalties. On the other hand, making timely payments and repaying the online installment loan in time may improve the borrower’s credit score.
What Are Examples of Installment Loans?
There are several different examples of installment loans, most of which fall into one of two categories: secured loans and unsecured loans. Both categories have their own unique advantages and drawbacks, and choosing the right type usually comes down to your financial needs and credit history.
Personal Loans
A personal loan is a term referring to any type of loan that a borrower can obtain from a financial institution or an online lender. They typically don’t require any collateral and rely on the borrower’s creditworthiness; they offer predetermined loan amounts and come with fixed repayment terms.
The most common types of unsecured loans are credit cards and cash advances, as well as unsecured loans for bad credit. They typically have less stringent application requirements and same- or next-business-day funding. However, they come with high interest rates.
Payday Loans
Payday loans, also known as cash advances, typically require no collateral or any other securities and often offer a quick solution for your immediate financial needs. However, they’re granted on a very short term, which usually ends with your following pay period, and they don’t rely on your credit report to determine your creditworthiness.
In addition, payday loans often carry exorbitantly high interest rates, which makes them exceptionally expensive and difficult to repay and may even come with hidden fees, like the origination fee.
Cash Advance Loans
The term “cash advance loan” is often used interchangeably for payday loans, but the truth is that these loans are similar but different in source and structure. Cash advances are offered by credit card companies, and they enable users to make purchases with the cost of goods and services added to their lines of credit, as opposed to debit cards, where funds have to be loaded before use.
While they permit customers to defer payments, these loan options typically have hefty interest rates and monthly repayment schedules.
Bad Credit Loans
Bad credit loans refer to a type of loan product that’s specifically designed and aimed at borrowers with bad credit. Their defining characteristic is the low credit score requirement (minimum 500 FICO), which is why they’re often marketed as no-credit-check loans.
Your eligibility for this type of loan isn’t based on your credit score, but the lenders will still inquire about the state of your credit to help determine the most adequate interest rates and repayment terms for your loan.
Auto Loans
Auto loans, also known as car title loans, are secured personal loans, as they’re backed by collateral, which is, in this case, your vehicle. The main idea behind this loan is that you transfer the title to the lender in exchange for a loan while still being able to continue to drive your car. However, you must fully repay the loan, with the interest fees included; otherwise, you risk losing the car.
You must own the vehicle or at least owe very little of it to qualify for a car title loan, and the entire loan application and approval process is finished in a matter of hours. Most car title loan companies feature an online application, and the funds are usually deposited in your checking account within one business day.
Mortgages
Mortgage loans are secured installment loans mostly granted by traditional financial institutions, such as banks, that are used to buy real estate property; most borrowers use it to buy a house. In this case, the property itself serves as collateral, and the lender may seize the property if you don’t adhere to the payment schedule and default on the loan.
Mortgages usually require some down payment, and the lenders usually perform credit checks, as well as your debts and employment terms, to evaluate your trustworthiness in making timely loan payments. Mortgages are long-term installment loans usually approved as 15- or 30-year mortgages.
Home Equity Line of Credit
A home equity line of credit, abbreviated HELOC, is a second mortgage that is secured by the borrower’s equity in their home. Likewise, the loan amount is also based on the said equity. In other words, you can borrow the home’s value minus the amount that you owe on the primary mortgage.
However, people also get HELOCs even if they own their homes outright, making them into primary mortgages. The reason behind this lies in the fact that borrowing against your equity often has favorable interest rates. Lenders typically only grant HELOCs to borrowers whose credit score is over 620, below 40% debt-to-income ratio, and at least 15% equity in a property.
Where to Get Installment Loans
Securing an installment loan, especially if you’re looking for an online installment loan with no credit checks, is a rather straightforward business. Simply fill out an inquiry form available on our website. Please remember that providing accurate and complete information, including your credit score, significantly improves your chances of securing a loan.
Once the form containing the necessary information is submitted, we will share your application with potential lenders within its vast network. Once a lender decides to offer you a loan, they’ll provide you with a loan agreement detailing the loan amount, interest rates, associated fees, and repayment terms.
Applying for Installment Loans
Applying for an installment loan isn’t difficult. Start by learning your credit score, even if you’re trying to secure an installment loan for individuals with bad credit because those loans still use your credit score to determine the amount of money and the interest rates.
Naturally, more favorable rates and terms are reserved for individuals with good credit, as they’re more likely to qualify for an installment loan and get better rates. These days, most lenders allow you to pre-qualify and get pre-approved within hours of submitting the application form.
This should be followed by a formal application during which you should submit your government-issued ID, proof of income, proof of residency, personal information, and any loan-specific documents.
Once your loan is approved, the lender will deposit the funds into your bank account, usually within 24 hours following the approval. After that, you should strive to make on-time payments because reports of timely repayments will reach credit unions and bureaus, allowing you to build credit and secure better terms with a new loan in the future.
Frequently Asked Questions
Here are the answers to some of the most frequently asked questions associated with installment loans:
One of the biggest benefits of installment loans is that they’re typically found online these days, with online lenders providing their potential customers with the ability to pre-apply and continue the loan application process online, eliminating the need for a visit to a local branch office.
Other benefits include predictability, transparency, convenience, and lack of prepayment penalties, so no entrapment often results from dishonest lenders’ shady lending practices.
Assuming that you’ve obtained an installment loan package aimed at individuals with bad credit scores, an application process won’t have any detrimental effect on your credit score.
However, since most lenders report to credit bureaus, late payments will negatively affect your credit score, particularly if you default on your loan. Likewise, timely repayment demonstrates financial maturity, and it will increase your credit score, allowing you to secure more favorable loan terms during your next loan application process.
While traditional financial institutions typically don’t approve loans to lenders with bad credit, certain direct lenders or other online lenders do offer loan products that are specifically aimed at borrowers with poor credit history.
It’s worth noting that the majority of these loan products are short-term loans, but long-term options are still available on the market, albeit with higher interest rates and less favorable repayment terms.
There are numerous alternatives to installment loans, like personal lines of credit, credit cards, payday loans, peer-to-peer lending, and family and friends. Any loan that will provide you with the most value is the one you should choose.
Summary
Installment loans are a great financing solution for unexpected or substantial financial needs, like large purchases, debt consolidation, medical expenses, or just improving your credit score and taking control of your financial life. If you’re interested in obtaining an installment loan, don’t hesitate to contact us; we’ll find you a suitable lender with reasonable terms.
