Are you in need of some cash to help you get by? Most of us are trying to get by with what we have. However, sometimes, it’s not enough and we need to look for ways to keep our finances going.
Often, the answer to this is to look into debt. Below, we’ve got a quick guide on installment loans and how to apply for them. Read on to answer the question burning in your mind, how do installment loans work?
1. What Is an Installment Loan?
The term ‘installment loan’ is a broad term referring to the majority of personal and commercial loans. An installment loan is any loan the borrower pays in fixed and regular installments. The loan can be long-term or short-term.
What the borrower pays on each payment or installment depends on the amount borrowed. Other main variables include the interest added to the debt and the term of the loan. These three things will determine how much the regular loan payment is per set payment date.
A common example of an installment loan is an auto loan. Mortgage loans and personal loans are other typical examples as well. The typical payment schedule for installment loans is monthly.
Almost installment loans are all fixed-rate loans. This means both parties agree upon the interest rate charged over the term of the loan at the time of borrowing. Thus, the regular payment amount stays the same throughout the term of the loan.
2. How Do Installment Loans Work?
Installment loans work much like other loans. You go to a lender and agree upon the amount and other details. Depending on the specific loan you are borrowing, the loan term, repayment frequency, and payment methods will differ.
For example, you applied for a secured personal loan. When you borrow, you give the lender collateral for claiming if you can’t make your payments. Every month, you’ll return a part of the total loan amount plus other fees.
If your loan term lasts for 12 months, for example, you make 12 total monthly loan payments. When the term finishes and you’ve paid the loan back plus added fees, it’s done. If you want to get another loan, you apply for one again.
Check here if you want to learn about installment loans. Some lenders allow online repayment or repayment via an app. Often, lenders will deduct your loan payments from your bank account on the due date.
3. Cost of an Installment Loan
We answered the question, “how do installment loans work?” Now, let’s talk about how much getting an installment loan may cost you. As we mentioned, the cost will depend on the loan.
When you apply for the loan and get approval, lenders will give you a loan contract. This contract will outline the fees and interest rates that will apply to your loan. Some factors affecting the total cost include fees, interests, and annual percentage rates (APRs).
4. Eligibility for Installment Loans
Do you have a bad credit score? That’s not a problem if you’re applying for an installment loan. People with bad credit scores and low income are most eligible for installment loans.
However, that doesn’t mean anyone can apply for it. The catch is you can afford the loan repayments. Also, some states don’t permit installment loans so keep your residency in mind.
5. How to Apply for an Installment Loan
Did you know that American household debt reached $13.21 trillion in 2018? Over 300 million Americans share the weight of that debt. Did you know that installment loans make up a big portion of that debt?
Now, it’s common for the average American to be in debt. The key to entering it is to make sure you’re first borrowing from a legitimate lender. A legitimate lender has a physical address won’t take a prepaid debit card from you.
You can look up installment loans online to begin your search for lenders. Remember to make sure installment loans are legal in your state first. When you find a good lender, always check for legitimacy before you contact them.
The process proceeds when you, the borrower, fill out an application for the specific loan you need. The lender looks over it and decides if you’re allowed the loan. Some will interview you a couple of times before they approve the loan.
Once you and the lender settle the details, you can get the money you’re borrowing. From that point on, you start paying the lender the fixed payment at the dates you agreed upon. If you fail, you will face consequences like losing the assets you put down as collateral.
6. Benefits of Installment Loans
Why should you apply for installment loans?
First, they are flexible loans. You can get one that agrees with your needs. This means you can get a loan amount and length of repayment time that matches your ability to repay the loan.
Second, installment loans don’t leave your account dry. For example, you can borrow money at a lower interest rate than with credit cards. Your money goes to better use than to a large cash outlay.
Third, as we mentioned above, a credit check isn’t compulsory. It’s great for people who want to bring their credit scores up.
Finally, since the payment for the loans doesn’t change, it’s easy to budget for it in advance.
To get these benefits, you need to use installment loans the right way. This includes making your loan payments on time. Remember that payment history comprises 35% of your FICO credit score.
If you forget payment dates often, enroll in automatic payments. Before you take the loan, make sure your lender allows automatic payments. You can schedule automatic payments from your checking account to your loan as well.
Apply for an Installment Loan Now
How do installment loans work? We hope this guide provides all the answers you seek.
Practice caution when you’re choosing your lenders. Remember to only borrow a sum you're sure you can repay.
We hope this post on installment loans gave you an idea on the subject. Did you find this post enjoyable or at least educational? If you want to learn more about loans, check out our other guides now.