What Is an Installment Loan?
An installment loan is a type of loan that allows you to borrow a set amount of money and then repay it over a period of time in fixed payments. Installment loans are generally available for larger amounts than other types of loans, such as payday loans, and can be used for a variety of purposes, such as consolidating debt or paying for unexpected expenses.
There are several benefits to taking out an installment loan, including a convenient repayment schedule, the ability to build a credit history and lower interest rates than other types of loans. If you’re considering an installment loan, here’s what you need to know about how to get one.
Check your credit score
Your credit score is one of the most important factors in determining whether you’ll be approved for an installment loan. Lenders will use your credit score to assess your riskiness as a borrower, so it’s important to check your score before applying for a loan. You can get your free credit score from a number of sources, including Credit Karma and Annual Credit Report.
Find a lender
There are many lenders that offer installment loans, including banks, credit unions, and online lenders. To find the best lender for you, compare interest rates, fees, and terms from multiple lenders before choosing one.
Apply for the loan
Once you’ve found a lender you want to work with, it’s time to apply for the loan. The application process will vary depending on the lender.
Types of installment loans
An installment loan is a type of loan that is repaid over time with a set number of scheduled payments. Installment loans are typically used to finance purchases or investments, such as a car or home. There are two main types of installment loans: secured and unsecured.
A secured installment loan is backed by collateral, such as a car or home equity. If you default on the loan, the lender can seize the collateral to recoup its losses. An unsecured installment loan has no collateral backing; if you default, the lender can only collect through legal means, such as wage garnishment.
How do installment loans work?
With an installment loan, you borrow a set amount of money and then make equal monthly payments until the loan is paid off. The interest rate on an installment loan is usually lower than the interest rate on a credit card because the loan is paid back over time rather than all at once.
For example, say you take out a $1,000 loan with an annual percentage rate (APR) of 10%. You agree to repay the loan in 12 monthly installments. Your monthly payment would be $86.07, and you would pay a total of $1,032.84 in interest over the life of the loan.
Benefits of installment loans
Convenient repayment schedule
One of the main benefits of an installment loan is that it offers a convenient repayment schedule. You can typically choose to make your payments on a weekly, biweekly, or monthly basis, making it easy to align your loan repayments with your income. This can help you stay on top of your loan and avoid falling behind on payments.
Builds credit history
Another benefit of an installment loan is that it can help you build your credit history. Making timely loan repayments can help improve your credit score, which can in turn make it easier to qualify for other loans in the future (such as a mortgage). Strong credit history can also lead to lower interest rates on future loans, saving you money over time.
Lower interest rates than other types of loans
Installment loans also tend to have lower interest rates than other types of loans (such as payday loans or title loans). This means you’ll save money on interest over the life of the loan, making it easier to afford your monthly payments.
How to get an installment loan.
Check your credit score
Your credit score is one of the most important factors in determining whether or not you will be approved for an installment loan. Lenders use your credit score to determine your risk level, and the higher your score, the lower your risk level and the more likely you are to be approved for a loan.
There are a few things you can do to check your credit score and make sure it is accurate. First, get a copy of your credit report from all three major credit reporting agencies: Equifax, Experian, and TransUnion. You are entitled to one free report from each agency every year. Review your reports carefully to make sure there are no errors that could hurt your chances of being approved for a loan.
If you find any errors, dispute them with the credit reporting agency immediately. You should also try to improve your credit score by paying down any outstanding debt you have and making all of your payments on time. If you have a lot of debt or late payments, it may take some time to improve your score enough to qualify for a loan.
Find a lender
Once you know what kind of loan you need and how much money you need to borrow, it’s time to start shopping around for lenders. There are many different types of lenders out there – from banks and credit unions to online lenders – so it’s important to compare rates, terms, and conditions before choosing one.
When comparing loans, pay attention to the Annual Percentage Rate (APR), which includes the interest rate plus any fees charged by the lender. The lower the APR, the better. You should also look at the repayment schedule and make sure it works with your budget; most installment loans have fixed monthly payments over a set period of time (usually 2-5 years).
Finally, make sure you understand all of the terms and conditions before signing anything; otherwise, you could end up paying more than you expected or not being able to meet the repayments if something happens down the road.
Apply for the loan
Applying for an installment loan is relatively simple; most lenders will require some basic information about yourself and your finances, such as proof of income and employment history. Some lenders may also run a hard inquiry on your credit report in order to get a better idea of your financial history and ability to repay the loan; this can temporarily lower your credit score by a few points but will generally only stay on your report for 12 months or less.
After submitting an application, it usually takes 1-2 weeks for approval; once approved, you’ll typically receive funds within 7-10 days depending on the lender.
Make Your Payments On Time
One of the most important things to do when taking out an installment loan is to make all of your payments on time. This means setting up automatic payments if possible and staying on top of your due dates so that you don’t accidentally miss a payment and damage your credit score. It’s also important to pay more than the minimum amount due each month if you can afford it, as this will help you pay off the loan more quickly and save money on interest charges.
Conclusion
If you’re looking for a loan that offers convenient repayment terms and can help you build your credit history, an installment loan may be the right choice for you. To get started, check your credit score to see if you qualify and then find a lender. Once you’ve been approved, make your payments on time to avoid any penalties or fees.