For sure, you’ve heard about online installment loans. This type of loan is one of the most coveted means of borrowing money today. It has a beneficial repayment structure that allows you to pay the sum of cash you’ve borrowed plus interest in periodic payments until the loan is paid off.
Installment loans come in different forms, namely: car loans, home loans, and personal loans. Like any other type of loan, timely payment on your installment loan can help you build or improve your credit profile. Keep in mind that a good credit profile allows you to get loans with low-interest rates and favorable repayment terms.
If you’re still asking: what is an online installment loan? Read this blog post to find out the answer.
How This Type of Loan Works?
Traditional banks and credit unions offer installment loans to people who need money. But, recently, online lending companies became the top choice among borrowers. It’s because applying online is very convenient, and there’s also the fact that you can get the cash you need faster.
Getting approved for this type of credit enables you to receive a loan amount that you have to pay back on an installment basis – usually every month – until the end of the loan term. The loan term can go as long as months or years, and the loan amount you owe can have a fixed or variable interest rate.
There are also extra charges that go along with installment loans, such as upfront fees and early-payment penalties. That’s why it’s crucial to ask the lender for such information before you get an installment loan.
Why Do People Take Out Installment Loans?
There are specific purposes of installment loans. People either use it to consolidate debt, cover sudden expenses, or buy a car or a house.
Buying a House
Home loans are an example of an installment loan. Basically, it’s a sum of cash borrowed from a lender to purchase a house. It’s a type of secured loan, which means that you pledge the home as collateral against the money you owe. So, failing to pay back the loan gives the lender the right to take possession of the property.
Loans that are used to buy a house have loan terms of 15 to 30 years. The interest rates vary from lender to lender and can either have a fixed or variable rate of interest. There are also charges, such as origination fees and closing costs, that come with home loans.
Purchasing a Car
Another loan type that has an installment basis repayment is a car loan. As its name suggests, the purpose of this loan is to buy a car. Typically, lenders who offer car loans require borrowers to put a down payment (the larger the money you put as down payment, the smaller the loan).
Like home loans, car loans come with collateral. So, if you take out this type of credit, the car that you’re buying will be used as security against the loan. In case of failure to pay back the loan plus interest, your lender can take possession of the car. This loan has terms ranging from 48 to 72 months.
Paying for Home Repairs, Debt Consolidation, and Other Expenses
Personal loans, which can be used for a lot of purposes, also come with installment payments. Unlike the loans mentioned previously, personal loans are unsecured. The only catch is that they may have higher interest rates.
You can borrow a sum of cash as low as $1,000 and as high as $100,000, depending on the lending company and your credit rating.
How Do Online Installment Loans Differ from Revolving Credit?
The main difference between an installment loan and a revolving credit is access to funds. In a revolving credit, there’s a limited credit line from which you can withdraw cash. You can decide how much money you take until you hit the maximum limit.
In an installment loan, the lender will give you the loan amount in a lump sum. There’s no line of credit, and you need to apply for a new loan if your first loan isn’t enough for your needs.
Does Getting an Installment Loan Boost Your Credit Score?
Paying your installment loan on time can put your credit profile in good standing. If you miss payments or fail to pay back the loan amount and its corresponding interest in full, this bad credit activity will drag down your credit score. So, be responsible when paying your dues.
Before you apply for an installment loan, make sure to know what it is and how it works. If you have some questions about this type of loan, you can revisit this blog post to learn about the basics of an installment loan.