Installment loans are essentially a form of credit that is extended to borrowers over a lump sum that is meant to be repaid in small, regular monthly payments over a set period of time. Each of these payments will include part of the loan’s principal and also the loan’s interest.
In most cases, you need to have a good credit score to secure such loans, especially when borrowing from traditional lenders like banks or credit unions. However, you can easily get no credit check installment loans via an online lending service like USInstallmentLoans, which makes it a great option if you can’t secure approval elsewhere.
In this respect, if you are thinking about taking out an installment loan, here’s everything that you need to know about them before you decide to apply for one today.
Types of Installment Loans That You Can Apply For
There are two main types of installment loans that you can apply for: secured and unsecured. The difference between the two lies in the fact that secured loans usually require you to put up some form of collateral, like an asset or property, while unsecured loans do not require you to put up any security.
The good thing about secured loans vs. unsecured loans is that they typically have much lower interest rates since the level of risk to the lender is significantly lower. In this regard, there are a few common types of installment loans (secured and unsecured) to consider:
Personal loans: These are the most popular type of unsecured installment loans that can often be applied for at traditional financial institutions like banks and credit unions, but you can also access installment loans with instant approval via USInstallmentLoans, even if you have a bad credit score.
Auto loans: These are secured installment loans that are meant to finance the purchase of a vehicle. They are typically available to borrowers of all credit types, but keep in mind that since the car is used as collateral, there is a chance that your vehicle could be repossessed if you fail to make your payments.
Mortgages: Similar to auto loans, mortgages are another form of secured lending, but this is specifically designed to help finance a home purchase. The property is effectively used as security to protect the lender, and as a result, borrowers can access longer repayment terms and lower interest rates. However, this also means your home can be foreclosed if you fail to meet your repayment obligations.
Student loans: These are a type of installment loan that helps borrowers pay for higher education fees. They can either be issued by a private lender or by the federal government. In this respect, the loan’s interest rates and terms can significantly vary depending on whether it is federal or private.
Bad-credit loans: Bad-credit loans are unsecured installment loans that are designed to specifically help borrowers with poor credit scores get funding. They are very easy to apply for, as you can often use online credit broker services like USInstallmentLoans to find a lender. They typically come with very lax eligibility requirements, so almost anyone can submit a loan request, but they also have high interest rates and short repayment periods.
Benefits and Drawbacks of Borrowing Installment Loans
You should always remember that installment loans can be both helpful and harmful to you, but it heavily depends on your current financial situation, credit, and borrowing needs. As such, they are neither inherently good nor bad, which is why you should be conscious of their pros and cons before you decide to apply for one of these loans.
In terms of potential benefits, installment loans can be good in that they come with:
- Predictable monthly payments: Should you ever find yourself on a tight budget, taking out an installment loan can be beneficial in that it can allow you to easily plan out your spending and repayments. Also, since they come with a fixed repayment term, eg. 2 or 5 years, you are fully aware of when you will be done paying them off.
- Fixed interest rate: Most installment loans tend to come with fixed interest rates, which means that you never have to worry about your rate suddenly increasing as a variable rate would. However, keep in mind that variable-rate loans can be useful if you are confident in your ability to repay your loan quickly.
- High credit limits: Installment loans allow you to access higher loan amounts than most other forms of lending like credit cards. It is for this reason that they are the best choice for making large purchases and even if you happen to have bad credit, you can use online loan services like USInstallmentLoans to secure the funding you need.
On the flip side, taking out an installment loan can also have a few drawbacks to consider:
- Lack of flexibility: The problem with installment loans is that once you borrow a set amount of money, you cannot borrow any more until you fully repay the previous loan. This means that should you need access to additional funds later to deal with an unexpected emergency, you will find yourself in a tough spot. On top of that, they typically come with fixed interest rates, which means that your payments remain the same and this can be a disadvantage if market conditions change.
Is an Installment Loan Right for You?
Installment loans can be very useful, but you have to consider the potential effects on your budget as well as the potential long-term impact on your credit. You should always make sure that you have sufficient room in your budget to afford the monthly payments.
Failure to do so can result in late payment fees and serious damage to your credit score, which impacts your ability to borrow a loan in the future.
In the event that you do borrow an installment loan and find yourself uncertain of your ability to make your loan repayments on time, you should always reach out to the lender in advance to inform them of the situation.
Some loan providers may be willing to provide you with a grace period that can make it easier for you to handle your repayments. Others may even be willing to adjust your repayment plan and provide you with a longer term to lower your monthly payment.
What Other Alternative Loan Options Should You Consider?
#1. Family and Friends
While it can be an uncomfortable experience to borrow money from friends and family, it is a viable option that you should consider, especially if you are unable to secure a loan from a bank or credit union.
However, keep in mind that failure to repay them can potentially sour your relationship with them. As such, you should always make sure that you lay out all the terms and conditions clearly to reduce the risk of any misunderstandings.
#2. Credit Cards
Another option to consider is to fund your purchase using a credit card. While the interest rates will usually be higher than personal loans, some cards have 0% APR introductory offers that provide you with an opportunity to pay off the balance without having to pay interest for a set period of time.
However, keep in mind that you would need to finish making payments on the card before the 0% period ends; otherwise, you will be required to pay interest on whatever balance remains.