When looking into getting loans, one option that may come up is an installment loan. However, you may have scrolled past it without knowing exactly what it is. These loans are common and once you understand them, installment loans can be beneficial to you.
Let's go in-depth into what an installment loan is and how it can be valuable to the average citizen.
What's an Installment Loan?
If you've heard of a car loan, mortgage, or personal loan, then you've heard of an installment loan. These loans are loans that are provided for a certain amount and are typically paid monthly. Payments are determined based on principle and fixed interest rates, making it simple for you to calculate payments and budget accordingly.
Installment loans can be used as a financial tool due to the fact that you can get a loan for just about any purpose, such as home renovations or establishing a restaurant. They can also be used to consolidate debt, which allows you to pay off debts to several creditors and make payments to one single source.
How Are They Different from Credit Cards?
Credit cards and other types of debt may seem like installment loans because they are paid monthly, but they aren't. Credit card debt is known as revolving credit, in which individuals are pre-approved for funds on a line of credit and must pay back any amount they have used. Credit cards can be used in much the same way as installment loans, though they often have high interest rates.
Considerations for Installment Loans
You'll have no trouble finding plenty of lenders willing to help you with the process of getting online installment loans. Friendly Lender installment loans and other loan options should be considered carefully so that you have a solid understanding of what you are signing up for. Two important factors you should assess before getting an installment loan are your credit score and current financial situation.
Your credit score is one of the biggest factors used when determining your eligibility to pay back an installment loan. Individuals with lower credit scores can expect to have higher interest rates. Even a small difference of 3% in interest payments can add up, so if you have a lower score you may consider taking steps to raise it.
There are several ways to improve your credit score, including paying all bills on time and making sure that all accounts and credit lines are current. If you have credit cards, aim to use no more than 20% of the card's limit. Avoiding credit inquiries is also helpful, as too many credit checks can significantly lower your score.
When you get an installment loan you will be expected to make payments on a monthly basis, otherwise the loan may go into default.
The amount you should expect to pay depends on what the loan is for, as mortgage payments may account for a higher percentage of your income than car loan payments. Before you sign up for an installment loan, assess your current expenses and figure out if you can afford an installment loan.
Is an Installment Loan Worth It?
With the information presented above, you can determine whether or not an installment loan is a smart option for you. If you're comparing them to credit cards, installment loans can be just as beneficial. They can be used to increase your score and make managing debt easy by combining several debts into one lump sum. However, it's important to keep in mind that these loans should be utilized properly to avoid causing financial problems down the road.
Any type of loan or line of credit can be good or bad depending on how it is used, so an installment loan needs to be managed properly if you want to reap any benefits. After assessing your credit score, estimated interest rates, current financial situation, and the total costs of the loan, you'll have the information needed to know if the loan is the right move for you.
If you're like most Canadians, you don't have several thousands of dollars saved for a rainy day. Most people make it through life living from paycheck to paycheck, which can make surprise expenses tough to deal with. An installment loan is a good way to cover large purchases that you aren't able to make in a large lump sum.
Installment loans are helpful for buying residential homes, achieving goals, getting a new vehicle, expanding your education, and more. However, you should assess your credit score as well as your financial situation beforehand to ensure that you can make payments and keep loans affordable while lowering your interest rates.