An installment loan is essentially a form of lending that involves borrowing a lump sum of money that is meant to be repaid in several small payments. These payments will usually be spread out over a period of time, typically months or years and can either be unsecured or secured by collateral like a car.
Installment loans can be obtained through banks, credit unions or online online brokers like the one who is called WeLoans, which is famous for payday loans for bad credit with no credit checks. However, each option tends to come with its own benefits and drawbacks that should be taken into consideration. For instance, it is easier to apply for installment loans from banks than credit unions as you are not required to be a member. However, they will usually come with more stringent lending criteria.
Meanwhile, you can find installment loans from WeLoans and borrow from online lenders who typically have less stringent lending requirements. In fact, many are even open to lending to those with bad credit. However, the downside is that the interest rates tend to be higher than what is typically offered by traditional lending institutions.
What Are Types of Installment Loans?
There are a wide variety of installment loans that you can apply for, depending on what suits your budget and requirements. Some of the most common types of installment loans that you can apply for include;
- Personal loans
These are a type of installment loan that you can essentially borrow to use for any reason such as debt consolidation, house renovation, car purchase, etc. These loans tend to come with high loan limits that can go as high as $35,000 or more, on average. They also come with interest rates that can range between 6% to 36%, with repayment terms that tend to revolve from 2 to 7 years, depending on the lender.
- Car loans
This is another type of installment loan that involves consumers making a down payment on a car and then financing the balance with a car loan. These loans will usually be repaid through monthly payments until the entire amount is repaid in full. On the flip side, if you fail to make your repayments on time, then the lender will most likely end up repossessing your newly-purchased vehicle.
- Mortgages
With a mortgage, you essentially borrow against the value of a property and make repayments on the loan with interest in monthly increments. In most cases, the repayment period will usually extend as high as 15 to 30 years. However, in the event that you miss a payment, there is a high chance that you could lose the house.
- Student loans
Whether federal or private, these are another common type of installment loans that are used to help pay for education. However, unlike other installment loans, you are not required to start making repayments right away. They also come with either fixed or variable rates, depending on the lending institution you decide to borrow from.
Do Installment Loans Impact Your Credit Rating?
When applying for an installment loan, you will often be subject to a hard credit check, which will usually end up lowering your credit score by a few points, albeit temporarily. But with WeLoans, this shouldn’t be your major issue to get an installment loan since lenders from this platform will perform soft credit checks that won’t hurt your credit.
Beyond that, these loans can be great for those looking to strengthen their credit rating, as long as you make consistent, on-time payments. This is because most installment loan providers will usually report to at least one of the three major credit bureaus, Experian, Equifax, and TransUnion. This also means that if you fail to make a repayment on time, there is a high chance that your credit score will take a negative hit.
For instance, a payment that’s 30 days or more late can potentially knock off 100 points or more from your credit score. It is for this reason that it is often recommended to set up autopay when taking out installment loans, as this takes away the pressure of having to remember to pay.
Pros And Cons of Applying For Installment Loans
There are multiple benefits that come with taking out installment loans, but they also come with possible disadvantages that should be considered before signing on the dotted line.
Pros:
- Consistent repayment schedule: One of the main benefits of installment loans is that the repayment terms tend to remain the same throughout the loan’s duration. This in turn makes it easy to create a monthly budget that helps to keep your finances in check, even while making repayments.
- Improves credit rating: Taking out an installment loan can be a great way to establish a clean payment history that ultimately helps to boost your credit score.
- Debt consolidation: If your credit score improves or interest rates fall, then you can always borrow an instalment loan to refinance your current debt into a more affordable loan. This in turn can help to lower your monthly payments or reduce the length of the loan.
Cons:
- Fixed payment: A downside to installment loans is that you cannot increase the amount you initially borrowed if you suddenly face a new financial emergency.
- Can be expensive: Installment loans can sometimes come with lengthy payment periods that can often make repaying the loan very expensive. In other words, the longer the repayment period is, the higher the loan will cost to fully repay in the long-run.
- Difficult to get with bad credit: The interest rate that you get when you apply for an installment loan is largely dependent on your credit score. This means that if your credit score is below average, you may be denied a loan or offered an exorbitantly high-interest rate, as a result.
Should You Apply For An Installment Loan?
If you are considering whether or not you should get an installment loan, it is important to weigh the pros against the cons. For instance, if you want an installment loan to refinance high-interest debt, then this can be a great strategy.
In addition, if you would rather deal with a fixed monthly payment, rather than take out a line of credit, then an installment loan can be a good idea. However, if you normally prefer taking out loans on an as-needed basis, then an installment loan is not usually the best option.
Either way, whatever you decide to use the money for, you should only take an installment if you are confident that you can afford to make your repayments on time. If you default on an installment loan, this can lower your credit score and negatively impact your ability to access credit down the road.
How To Apply For An Installment Loan
The first step in applying for an instalment loan is to find a loan provider. You can either borrow from a bank, credit union or online lender. Each of these loan providers will use different methods to assess your loan request and assign your rate. This is why you should always take the time to first compare your options to see which one can offer the most favorable lending terms.
It is often best to use an online credit service like WeLoans, as you will be able to submit a loan request, without having to pay any fees. The company’s cooperated lenders will review your application and if you are approved, you will be able to view potential loan amounts, rates and payments. You will also be able to assess how the repayments may impact your monthly budget in advance.