Even though there a lot of people who probably don’t even know the definition of an installment loan, there’s a pretty good chance they would need to take out one some day.
What is an installment loan?
An installment loan is a type of loan in which you pay back the amount you’ve taken out in a set number of scheduled payments over a certain period of time. A lot of different types of loans fall into the category of installment loans, that includes mortgages and auto loans. Even though credit card requires a monthly minimum payment, it is not an installment loan.
As we already said, installment loans require a number of regular payments over a certain period of time. Compared to payday loans, installment loans normally last longer (they could last several years) with each payment evenly spread over the whole period of the loan with interest included.
No doubt, taking out an installment loan can be quite beneficial, especially if it is for big purchases and also for any other situations where you are in need of cash. Installment loan lending companies not only provide borrowers with much lower interest rates on their loans compared to other types of loans, their clients also build credit if their credit history is poor or if they don’t have a credit history at all.
If you are considering an installment loan, the first thing you should probably do is get information about every type of installment loans to find the one that is best suited for your situation. After that, you should find a reliable installment loan lending company to work with. We are going to share some insights on how to choose an installment loan that works for you.
Different types of installment loans
Before you decide to take out an installment loan you must know the different types you can choose from:
Unsecured Installment Loans
Normally, unsecured installment loans are loans for a small sum with high interest rates. They are some of the most popular types of loans you can find. With unsecured installment loans, you get your money from the lender and you have to pay it back over an agreed period of time. Going for this type of loan makes the most sense when you need money only for a short time period – 4-5 years or less. It is also worth mentioning that if your payments are on time, it can really help you with rebuilding your credit.
Student loans are a type of installment loan where you get a set amount of money for your educational expenses. Once you are out of college, you have to pay back the loan by paying a set amount of money each month. Student loans also give you the option to defer your payments for a period of time when you are unemployed but once you’re employed again, you will have to pick up the repayments again.
When taking out a mortgage loan, what you are able to do is to finance your house and pay back the loan over a set number of years. It is of great importance that you do your repayments on time or you will be at risk of losing your home and badly damaging your credit.
If your car has broken down or you just want to buy a new one but you don’t have the cash, probably a car installment loan is the answer for you. Keep in mind though that much like mortgage loans, if you are not able to pay the money back on time, you risk your car being taken back.
Choosing the right lender
Once you’ve decided what type of installment loan you want to take out, it’s time to choose a reliable lender who is best able to meet your needs and apply for your loan. To do so, here are a few steps you could take:
Make a good financial portfolio
The application process itself does not create as much stress as the documents you have to prepare in order to ensure your application for the installment loan will be approved. What you need to do first is to collect all the data (your credit records and financial status). Perhaps your liabilities and assets are what your potential lending company may be interested in, so you must not forget to take them along with you.
Even though traditional banks are way more strict when it comes to your documents, installment loan lenders also require some paperwork, so you should keep that in mind.
Think the whole thing through
You shouldn’t apply for an installment loan if you are not completely sure that you need one. If you decide to apply for one, you should ask yourself whether you can afford to repay it. Your ability to pay back the installment loan should be your main concern.
Few things you may want to do before you proceed with your loan:
- Ask which are the types of installment loans you qualify for
- See if there are any hidden fees or charges you’ll have to pay apart from the interest rate
Doing those things will help you find an honest and reliable lender.
Apply for your loan
Once you’ve decided which type of loan you want and you have found the right lender, there’s only one thing left to do – submit your application and get the cash you need.