Whenever you fall into financial distress and require more cash than you can obtain from an advance, borrowing from a bank becomes your first option. While institutional and online direct lenders can still give installment loans, it is the loan process that discourages borrowers. Plus, if you sail through, you may have to wait for a long time for approval. Granted, you do not have the luxury of waiting when an emergency is pressing. Installment loans become your next choice.
What are installment loans
Unlike other types of borrowing such as payday advances and bad credit loans, installment debts allow you to obtain large amounts. Moreover, the loan structure is such that you can repay over a more extended period compared to a cash advance. Depending on who you approach, loans direct lenders can authorize the amount you have applied for and give you some leeway to decide on the time you would need to repay. Flexibility works to your advantage in two ways:
- Borrow short-term but pay in large sums
- Go for an extended repayment period and pay in small amounts
However, some states in the US do not have installment loans. In others, state laws put a cap on the minimum and maximum loan amount. Also, some regions have a limit on how long borrowers should take before paying their dues in full. Nevertheless, an installment loans direct lender can help you better understand how the credit facility works.
How installment loans work
Typically, installment loans involve you, the borrower securing credit from a lending source. The arrangement is such that you will repay in equal monthly installments for the duration in question. Part of the amount you pay back consists of interest and the principal. Financial experts hired by lending firms use computer software to amortize the borrowed money such that at the end of the credit period, you will have paid what you borrowed plus interest, which represents the loan lender profit. With installment loans, you can conveniently pay for your children’s tuition or buy a home.
Example of installment loans
A personal loan, car loan and mortgage are a good example of installment loans. However, to obtain a mortgage or a car loan, you must be of good credit standing. Besides, the credit checks put in place by lenders is quite extensive. On the contrary, obtaining a personal installment loan approval is easy. You can secure one to help clear your credit card debts. Alternatively, you may use the funds to consolidate other debts. With the money received, you can finance a vacation you have always dreamt of or pay for a wedding. The facility comes at a fixed rate of interest, plus the lender prepares a repayment schedule detailing the installments you will pay.
Purchasing a car in cash does not always work for everyone. However, with a good credit status, you can secure a loan, hassle-free and still buy the car you wanted. After that, you start repaying the auto loans in small regular amounts as agreed. Repaying an auto loan takes anywhere from 24 to 48 months, but some exceptions range from between 72 and 84 months. The beauty of acquiring a car on credit is that you pay using affordable monthly payments while enjoying the luxury of car ownership. However, over the four, five or six years given for repayment, you will end up paying more than the actual cost of the automobile.
How installment loans affect credit score
Your credit history speaks volumes in determining whether you are eligible for the loan. Whichever way you look at it, a low credit score could hamper a borrower’s loan applications for large amounts. Unlike auto loans, mortgages impose stricter requirements. The logic is simple; houses are, in most cases, far much expensive than cars. With a high credit score, a lender can advance you a car loan at three percent for 60 months. A fair rating will attract between seven to ten percent. However, poor credit will get you an upwards of 15 percent. With personal installment loans, you can solidify your credit status.
Can you have two installment loans?
An installment loan or debt is a credit facility where the borrower pays back the principal amount plus interest monthly. An amortization schedule determines the periodic payments. The cash obtained is ideal for buying appliances, automobiles, homes and business buildings. You may also find it convenient to apply for an online installment loan. Both the lenders and borrowers benefit; the former has a regular cash flow while the latter can procure the desired asset.