An installment loan is where individuals borrow a lump sum of money. The loan is then repaid in equal monthly installments by the borrower over a set duration of time. Typical timeframes can range from 3 months to 72 months or even longer.
Consumers typically use these loans to finance the purchase of more considerable assets. These include houses, cars, and appliances on certain occasions.
What makes online installment loans so popular is that they’re available for people with bad credit. Additionally, installment loans are incredibly flexible, and there are several different types.
1 – Figure Out What Type of Installment Loan Fits Your Needs
There are several different types of installment loans that are available for users. The most common installment loans include:
- personal loans
- mortgages
- auto loans
- student loans
These products offer fixed rates and monthly payments, with mortgages and student loans being the exception.
Mortgages and auto loans are secure installment loans that are available for individuals. The house or vehicle serves as collateral in these secure loan contracts.
In comparison, personal loans are unsecured and are available for those with good credit at lower interest rates. Before taking out an installment loan, think about precisely why you need the loan.
For example, maybe there is a specific purpose for the loan like buying a vehicle or home remodeling. In that case, borrowers are better off going for secure loans. However, while consolidating debt or refinancing auto loans, borrowers are better off going with personal loans.
Additionally, each type of loan offers different rates as well. Mortgages and auto-loans provide a lower interest rate because they’re guaranteed with collateral.
2 – Vet Each Lender Carefully
Online installment loans are a fast-growing industry, and there’s a lot of competition. Several lenders are available, and borrowers need to look through each of these carefully. However, not every lender is reliable, and consumers need to be very careful when looking to enter into a contract.
There are a few red flags that consumers need to watch out for while vetting lenders.
- One of the most prominent signs to watch out for is lenders that ask for very high upfront fees. These more often than not turn out to be a scam.
- Additionally, borrowers should do their research to identify offers that are seemingly too good to be true.
- While looking to get an installment loan online, one should be as cautious as possible. Make sure to read all the fine print and ask a lot of questions. Stick with reputable lenders like Check-Into-Cash, Simple Fast Loans, and Advance America.
Following the above set of guidelines will help to avoid any potential scams and get the best deals available. Individuals that have good credit scores have a much easier time finding decent lenders. However, those with bad credit scores need to be more vigilant.
3 – Compare Affordability
There’s a wealth of different loan options available to modern consumers, and that’s what makes installment loans so attractive. Each vendor has different interest rates for various durations.
Borrowers can check the other available options and choose the most affordable ones. Each vendor has different credit score requirements and different rates according to the individual’s credit score.
Installment loan lenders also offer loans for various amounts, and borrowers should only focus on those that offer the best rates.
Additionally, borrowers need to pay attention to the different charges that the vendors may have. Individual lenders require an origination fee to process the loan application while others don’t have any such requirements. All of these different factors contribute to the affordability of the loan.
4 – Compare Terms and Conditions
Moreover, vendors also have different terms and conditions for every loan. These terms and conditions might include a loan prepayment fee or several specific conditions that might apply.
Borrowers need to carefully understand the requirements of each vendor and what terms they must follow during the loan. It can be a great way to avoid any potential issues or penalties that may arise.
| Reliable Lenders | Unreliable Lenders |
| Will immediately declare all the potential terms and conditions for the borrower | Will try to hide all the terms and conditions to exploit the customers. |
5 – What You Should Avoid
While online installment loans are helpful, some predatory lenders can do a lot of financial damage.
Several agencies offer installment loans without asking for a credit check—more information here. These are loans that borrowers should avoid at all costs. They’re typically available for significantly higher interest rates, and these vendors often hide different penalties from borrowers as well.
Additionally, users should avoid payday loans. Payday loans are increasingly being marketed as short-term installment loans. They’re typically accessed to emergency cash at high-interest rates and are due on the next pay date. However, the interest rates are astronomically high and are next to impossible to pay.
As a result, these borrowers get stuck in the “payday trap” and have to repay an increasingly high amount that seemingly never ends.
6 – Know the Amount You Can Afford
Additionally, one of the most important things to consider before taking out an installment loan is knowing how much you can afford. Installment loans can be a great way to build up a credit score.
However, that’s only the case for when the borrower can afford the loan. Taking on an installment loan that one can’t afford is the easiest way to fall into a debt trap.
Being late on payments is the number one reason why individuals have a bad credit score. If the monthly payment is out of reach, then the borrowers will have trouble making payments on time. Knowing what you can afford is key to picking out the right installment loan and will help build up the credit score.
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