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.
Takeaway
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.
