Installment Loans Explained

Aug 18, 2017
2 min read

Many people have heard of installment loans but don’t really understand what they are and why they’re so useful. If you fall into that category of people, here’s a brief guide to installment loans and their benefits.

What is an installment loan?

Installment loans let you borrow what you need and pay it back to the lender over a fixed period of time. Whereas a payday loan can be useful for borrowing a small amount of money for a short period of time, an installment loan is ideal if you need to borrow a larger amount over several years. In general, you can borrow anything between $1,000 and $3,000 although some lenders do not offer this whole range.

Installment loans may be the ideal choice if you’re disciplined about your finances. You’ll need to commit to repaying a fixed amount of money every month for a number of years, so this will require good financial management skills.

How do installment loans work?

When you apply for an installment loan online, the website should have a calculator tool to enable you to work out how much your loan will cost if you pay it back at different rates. For instance, a $2,000 loan will cost different amounts, depending on whether you pay it back over three years or six years. This means there is a good deal of flexibility, allowing you to borrow at a cheaper rate if you are confident of paying it back more quickly.

Key benefits of installment loans

Installment loans are handy for a number of reasons. For instance, they enable you to:

Get the money you need quickly and easily, assuming you meet certain criteria
Borrow relatively small or large sums of money, depending on your needs
Choose how much you can afford to pay back monthly before taking out the loan
Borrow over a longer period of time so you can pay back the money comfortably
Enjoy more flexibility than with other types of unsecured loan

Signing the paperwork

Regardless of how easy it is to get an installment loan, there will, of course, be paperwork involved. This represents a legal agreement between you and the lender and provides protection to both parties. Make sure you understand the small print and have fully grasped what is required of you before signing on the dotted line.

A final word about credit scores

Credit Score Worries

Your credit score is likely to influence loan companies’ feelings toward lending to you. If you’ve borrowed excessively in the past and failed to repay your debts on time, this will have translated into a poor credit score. Some lenders are willing to approve this type of applicant, as long as they seem able to make the necessary repayments at the present time. However, others take a dimmer view toward applicants with poor credit scores. Do your research first and ensure that the lender you apply to is likely to consider your application. If they do and you make all of your subsequent repayments according to your repayment schedule, you’ll soon see an improvement in your credit score.