Online installment loans are a type of credit with a set of regular payments over a predetermined period. The amount of money you’ll borrow will have a corresponding interest rate, fees, and repayment term, which can impact how much you pay regularly.
There are common types of loans that borrowers have to pay back on an installment basis, namely: personal loans, auto loans, and house loans. If you’re a good payer that pays on schedule, there’s a high chance that your timely payment activities can boost your credit ratings.
An excellent credit score is an important requirement for getting a loan with an advantageous repayment term and low-interest rate. You can take a look at this article to read more on online installment loans.
How Installment Loans Online Work?
Typically, you can apply for an installment loan at credit unions and traditional banks. But online direct lenders have been the go-to options for borrowers recently since the online application is less hassle, and you can obtain the money you need faster.
An installment loan provides you with an amount of cash that you have to repay on installments – typically on a monthly basis – until you pay back in full the principal and its interest.
This type of loan can have a lifespan of months or years, and it can have a variable or fixed interest rate. You also have to watch out for ancillary fees, such as origination fees or prepayment penalties. Always read the terms and conditions of the lender before you take out this type of loan to understand how it works.
What are the Specific Purposes for Getting Installment Loans?
There are various reasons why people get installment loans. Whatever your purpose, this loan type is great for making large purchases or covering emergency expenses.
Buying a Car
Auto loans or car loans are a common example of installment credit. This is money that you borrow from a lender or car dealer for the purchase of a car. Taking out a car loan requires a down payment (the bigger the down payment you provide, the smaller your loan will be).
An auto loan is a secured loan, which means that you put your car as collateral against the money you borrow. The lender can take possession of your vehicle once you fail to repay what you owe. This type of installment loan typically can take 30 to 70 months (or more) to repay.
Purchasing a House
Another example of installment credit is a home loan or mortgage. Like car loans, home loans require you to put up the house as collateral. So, if you don’t pay what you owe to the lender, the home can be repossessed by the lender.
This type of loan typically has longer repayment terms, ranging between 10 to 30 years. The interest rate can also be fixed or variable, depending on the lending company. Plus, there are fees that you have to pay, such as origination and closing fees.
Debt Consolidation, Home Repairs, and Any Expenses
Personal loans are a popular type of installment credit because you can use it for many purposes. Borrowers use this loan to consolidate their debts, cover emergency expenses, pay for home repairs, etc.
Personal loans don’t need collateral, but they may have higher rates of interest depending on the lender or your credit score. Borrowing limits of this type of loan can be as high as $50,000, with terms ranging from 2 to 5 years.
Does Taking Out an Installment Loan Improve Your Credit?
If you want to improve your credit profile, getting an installment loan is a good option. But, of course, you have to make timely payments on your loan to achieve your goal. If you pay your loan on schedule, it means that you’re a responsible borrower, and it can positively impact your credit.
It’s advised to pay your loan off on time instead of paying it early. Some installment loans have prepayment penalties. Also, if you pay earlier than the payment schedule, the gains on your credit score will be less.
When you pay back the installment loan in full, your account will be closed, and your payment for this loan will be on your credit report for ten years.
What’s the Difference of an Installment Loan vs. a Revolving Credit?
Revolving credit lets you take out whatever amount of cash from a line of credit until you reach the maximum limit. So, it’s your decision to get less or more from this credit line. You’ll only pay the amount you’ve taken out plus its interest.
An installment loan, on the other hand, provides you a fixed lump sum of cash. If you think that you need more money, you have to apply for a new loan with a new interest rate and repayment term.
I hope the information above answers your questions about online installment loans. It’s crucial to do some research to understand how this type of loan works and make sure that it suits your needs.