The term installment loan mainly relates to how you repay your debt. This is a scheduled supplementary payment made monthly or quarterly to pay off your debt. When you get cash with installment financing, you receive financing in a single payment but are obliged to return it through equated monthly payments over the course of debt. In simple terms, you get quick funding all at once but repay it in small and more manageable monthly contributions over a longer period, lasting up to ten years.
How Do Installment Loans Work?
- Submit a credit request for installment financing either online or at a storefront office. You will be required to provide personal data such as name, contact information, address, banking information, etc.
- Discuss the financing alternatives with your lender to get clear information on how much you can afford to take out, how much you will end up paying each month and what sort of repayment plan will suit you best.
- The loan amounts will be delivered to the borrower in one single payment. If the funding is not attached to a specified purpose, similar to a mortgage or car debt, it can be used for almost any purpose.
Types of Installment Loans
Nowadays, installment tools are a highly prevalent form of lending. However, even if you are not familiar with this type of financing, you have probably heard of personal or mortgage financing that caters to different needs but features similar repayment arrangements. Here are the most common types of installment financing you may come across.
Mortgages
A mortgage debt, commonly known as a mortgage, is used to raise funds to purchase real estate. This is backed by the borrower's property, meaning that the lender is allowed to seize the property if a borrower defaults on debt repayment or otherwise fails to follow his contractual obligations.
Personal Loans
This form of financing can be used for various reasons. For example, a personal loan might be used to consolidate debt, pay medical costs, or make rent payments. Instead of being paid directly to debt collectors or vehicle dealerships or a home renovation contractor, mostly personal financing is directly delivered to a borrower to use whatever he sees suitable. Primarily personal tools are marketed as an unsecured form of lending which requires minimal documentation. This means that even if you fail on your monthly payments, you don't risk your valuable assets since no collateral; is attached to your debt. However, keep in mind that default on debt payments may cause a credit score decrease, plus you may expect your debt to be headed to a collection agency.
Auto Financing
An auto loan is a vehicle financing method that you borrow against the vehicle you want to get; therefore, the vehicle stands as collateral backing up your debt. Typically, the automobile's market value impacts the credit amount a borrower may obtain since most lenders calculate a credit-to-value ratio.
Rather than saving up the money required to buy a car, you may finance your purchase with auto financing that you pay back in equated monthly payments over time.
Student Loans
A student loan is a form of financing to pay for post-secondary education fees, such as tuition, accommodation, and other education-related costs. Actually, two types of student funding exist: federal and private. The government offers federal student financing, usually featuring better lower interest rates and longer repayment plans. Meanwhile, the private ones are mostly granted by banks, credit unions, or independent internet lenders. You may even qualify for an additional discount; however, mostly, student financing requires an additional cosigner to qualify.
You need to fill out an online credit request for federal student credits, also referred to as FAFSA. To qualify, you must have a high school diploma, valid security, and be enrolled in a certificate program. For private reasons, you will need to complete an application on your lender's website. The amount will depend on your degree completion time. The average student loan amount per year ranges from $7.000 to $15.000. Indeed, one of the most important facts about this type of financing is that you start making payments on debt only after he graduates or finds a stable source of income.
The Best Installment Loans
Whenever you look for a financing option out there, it's always worth researching to ensure you opt for the best option available. As the most frequent type of consumer borrowing, installment loans provide a variety of advantages every borrower may benefit from. Here are some of the most common ones:
No credit check
If you have bad or no credit, it can be quite difficult to qualify for an installment loan. However, you may find no credit check financing offered by internet lenders. Most lenders working with our platform prequalify borrowers to determine whether to approve or reject a credit request. This enables borrowers to get credit offers from different lenders and compare them to locate the best one without risking their credit score.
Online and In-Store Options
Installments loans are available to take out either in person or online. Going for an online practice may be a wiser decision if you no longer want to make in-store visits to a lender or deal with paperwork. You can submit your credit request online to make it easier to find the best deal.
Fewer Requirements
Installment loans are appealing to many borrowers since the eligibility requirements are generally less strict than in other types of financing, primarily if you work with an online lender. To find a reliable one, submit your credit request at our website instead of visiting brick-and-mortar locations.
Unsecured vs. Secured Loans: What's the Difference?
In conventional finance, credit tools are divided into two categories: secured and unsecured. The main difference between these two is the absence or otherwise presence of collateral that serves as security to lower the default risk and ensure lenders against non-payment. Therefore, when you are taking out a cash advance, you will most likely have to choose between secured and unsecured tools.
As the name implies, unsecured loans, also referred to as uncollateralized, have no collateral backing. Thus, if you default on your debt payment, the lender is required to file a lawsuit to recover the amount owing since no security is attached to financing.
Most traditional lenders like banks and non-banking financial entities issue unsecured installment credits exclusively based on your financial state and borrowing power. Plus, they charge relatively higher interest rates and apply stricter eligibility requirements. However, if you meet all these requirements, you will be able to qualify for the best credit terms.
On the other hand, secured advances, like a mortgage, require collateral against the cash to motivate a borrower to make on-time payments. Defaulting on secured debt may cause a credit score drop and repossession of your assets to cover damages.
Difference Between Payday and Installment Loans
Having at least three to six months' worth of expenses set aside in a savings account is a fair chunk of cash to deal with unexpected costs. Unplanned car repair or medical expenses may plunge you into a financial crisis and exhaust your budget considerably. In a similar situation, payday advances may appear to be a fast cure to assist you in getting through financial hardship. However, they may have a detrimental impact on your financial wellbeing.
Payday loans are short-term cash advances that must be repaid typically within two weeks, which might be difficult if you are facing a money shortage.
Key Differences:
- Amount: Payday loans are small-dollar credits ranging from $100 to $2500; meanwhile, installment funding might offer hundreds of thousand dollars in a lump sum payment.
- Repayment terms: The payback period for payday advances is quite short, typically from two to four weeks. Whereas installment loans provide longer repayment plans ranging between a couple of years.
- Repayment method: Payday financing features one-time payments, meaning that you must pay off your entire debt in a single check. Meanwhile, installment loans offer equated monthly payments spread over a longer period while keeping costs low.
- Interest rates: Unlike payday loans and quick cash advances, installment tools apply relatively lower interest rates, making them easy to repay.
How Long Will You Repay an Installment Loan?
As a rule, installment credits feature fixed repayment trams meaning you have to make monthly payments within a certain period. The majority of installment tools have repayment terms ranging from 12 to 120 months. However, periods may vary depending on such factors as the type of financing (secured or unsecured), the borrowed amount, and the state where lending occurs. For instance, a personal loan often features smaller and shorter repayment plans; meanwhile, a home equity line of credit and mortgages offer larger amounts with longer repayment schedules.
If you are looking for professional assistance to find an installment loan best matching your financial state, opt for peer-to-peer lending platforms. They spare no effort to simplify your economic life and build a financial cushion by matching you with trustworthy lenders online.
How do Installment Loans differ from Revolving Credits?
Unlike an installment loan where you borrow a fixed amount, with revolving credit tools, you borrow against your credit limit previously set by your lender. You are allowed to borrow as much as you need until you have reached your credit limit. A credit card and a personal credit line are the most common types of revolving debts that require a monthly payment if you pay less than the total balance. Compared to installment tools, credit cards feature higher interest rates. The average credit card interest rate is more than 16% plus daily compound interest. Thus, the longer you delay paying your monthly payment on a credit card, the more you owe.
Revolving credit tools are usually an unsecured form of lending, meaning that no collateral is attached to your debt. However, we may come across a home equity line of credit, which is exceptionally a collateralized debt, meaning that you may risk your assets if you don't make payments.
With installment funding, on the other hand, you cannot borrow again once you pay down your balance. You have a predetermined date and amount that you have to pay each month. You may refinance your debt and opt for larger amounts if you need to make more money after getting installment advances.
Benefits of Installment Loans
Mostly installment loans accompany predictable monthly payments making debt repayment more manageable. However, if you go for fixed-interest financing, you may explore equated payments each month until you pay off your debt.
As a result, regularly scheduled monthly payments help you better grasp money management. But, more importantly, they prevent you from missing a monthly credit payment due to unforeseen fluctuations in the credit amount you owe.
When you are shopping around for installment loans, ensure monthly payments won't put a strain on your finances; otherwise, you may find it difficult to pay the due amount once an unexpected emergency arises.
Moreover, installment loans provide peace of mind that your debt will be settled upon a certain date, typically once you have completed the required number of monthly payments. However, you may pay off your debt earlier with the shortest payment period you may manage. Keep in mind that early repayment fees may apply.
An installment financing might be a good option if you are looking for a funding alternative to revolving or short-term instruments. These also offer a simple budgeting framework due to regular monthly installments. However, keep in mind that from the aspect of flexibility, installment loans may fall short since you cannot borrow additional amounts within a credit limit (similar to a credit card).
