There are many types of installment loans. Mortgages and auto loans are among the most popular under this category. Contrary to popular belief, credit cards are not considered installment loans despite the fact that you are required to pay for a monthly minimum. If you are considering applying for installment loans, know that the payment and other policies may differ from that of having a credit card.
Installment Loans vs. Payday Loans
Generally, payday loans have shorter duration and usually have higher interest rate. Unlike installment loans that last for months and with payments evenly divided over the course of these months, payday loans are often paid back in a single lump sum on the borrower’s next payday.
For example, Brian wants to borrow $1,000 to pay for the repairs he needed for his house. He takes out an installment loan that requires him to pay the full amount back in 24 months. This loan comes with a 25% interest rate. Brian will then get the full $1,000, but will have to pay additional 25% or 53.3700 for the next 24 months.
What about People with Bad Credit?
In most cases, people who require time to recover financially are the ones who are in dire need of this kind of loan. This is why many banks and even online financial institutions offer installment loans for people with bad credit.
Many potential borrowers worry that their poor credit history will hinder them from getting an approval for this type of loan. In reality, there are installment loans for people with less stellar credit score.
For this particular application, traditional credit checks are not required. Although there are personal loans wherein credit check may be performed, you generally have a good chance of getting installment loans despite bad credit. In fact, most banks instantly approve loan applications below $1,000 without going through your credit history.
The process also depends on the kind of installment loans you are applying for. You may need a property that can serve as your collateral in case you cannot pay the loan as stated in the agreement. In this case, the financial institution will put a lien against your property to ensure that their business is protected no matter what happens.
Is It a Good Choice to Make?
The best thing about installment loans is that it gives you options. This is not limited only on the various loans that you can apply for. This also works in terms of having enough time to rebuild your credit.
Aside from this, you can apply to as much as $1,000 online and avoid the hassle that loan applications are commonly known for. The application process is fast and easy. You can even get approved in as fast as 3 minutes. However, it is best to know what you are getting yourself into before you actually apply for it. Here are some things you need to know about installment loans.
Annual Percentage Rate (APR)
This APR for short-term installment loans ranges from 547.5% – 999.45%. The APR you fall under depends on various factors mainly associated with the amount you applied for and the length of time. Generally, larger loans that are paid for a longer period of time have lower interest rates.
Although the figures shown about appear daunting, keep in mind that these are applicable for loans with very short time frame. Usually, these loans take only about 2 weeks.
Charges, Fees, and Other Financial Implications
Short term payday loans are mean to be as what its name suggests – short term. In most cases, the fees range from $15 – $40 for each $100 – $500 that you borrow. These fees begin to drop for loans that exceed $500.
A lot of people opt for these short term loans because these fees are cheaper compared to paying for a bounced check, late credit card bills, or disconnected utility. In other words, it is a great funding to turn to in case of financial emergency.
How to Pay for the Loan?
If, for some reason, your loan has become delinquent, you will be contacted by a representative from your bank. There will be pay off arrangements and, in some cases, payment options for you to choose from.
However, if the account still remains delinquent after the lender has done its part to help you out, they may send the loan to a third party collection agency to recover the money on their behalf.
Lenders of short term loans may rely on credit reporting agencies. Generally, however, the borrowers do not need to be concerned about how their score will affect their application or how this will affect their credit score. The results are also within the discretion of the lenders.
At the same time, lenders have their own criteria to which they base their approval and disapproval. These criteria may be based on the borrower’s income and ability to repay the loan. Borrowers who have history with the lending institution or other banks may use their history as basis as well.
So Should I Go for It?
Online installment loans are available in all states in the U.S. and they are especially popular in California, Texas and Ohio. Knowing that there are pros and cons in taking installment loans should help you decide whether this loan should benefit you or not. There are no standards when it comes to your personal finances. One size does not fit all.
However, all things considered, you may want to check your options first. See if you have cheaper alternatives than installment loans. For example, you may opt to borrow money from a friend or family member who is willing to collect the payment one month at a time.
Remember that installment loans will benefit you if you have a long-term plan in paying off the loan. It will not help your credit score if you do not catch up on the payments in a regular basis. Consider this as one of your best choices and research for banks and online financial companies that offer the best deals for your particular purpose.