If you’ve ever shopped for a personal loan, then you’ve likely heard of installment loans. These are very common types of loans that people use for many different reasons. If you’re looking for installment loans to build credit, you should familiarize yourself with all the different forms they take.
What Are Credit Builder Loans?
If you’re familiar with credit scores and personal loans, then you may also be familiar with the term “credit-builder” loan. This is any loan that helps to improve your credit score. But which loans are credit-building loans, and how do they work?
Essentially, any loan that is reported to the credit bureaus can be a credit-builder loan. This means that your lender is reporting your payments to the companies that track your credit and borrowing history.
So if you make your payments on time, your score may go up. But if you fail to make payments, it may negatively impact your score.
Which Installment Loans Build Credit?
In the simplest terms, an installment loan is any loan that requires regular monthly payments—or “installments.”
Because there are so many different forms of installment loans, they will vary in size, terms, and interest rates. Here are some of the most common installment loans to build credit:
1. Personal Installment Loans
A personal installment loan is a good alternative to other short-term, small-dollar loans for borrowers with poor credit scores. And depending on the lender, your installment loan may help you raise your credit score if you make on-time payments. But always talk to your specific lender to find out if their loans can improve your credit score.
A personal installment loan can range from a few hundred dollars, all the way to a few thousand. The amount you get will depend on your credit history, income, and where you live. And the repayment terms will vary as well but can last up to a couple of years in some cases.
2. Auto Loans
An auto loan would be considered an installment loan as well. This is a loan that you take out to buy a vehicle. You can get them through a dealership, a bank, or other financial institutions. And making payments on time will be important for improving your credit score over time.
Mortgages are another form of installment loans. These are loans you get to purchase a home or property. They will vary in size depending on the cost of the home, but they tend to be some of the largest loans you can get.
A mortgage is typically repaid over the course of many years, usually 15 or 30 depending on your contract. Just like with auto loans and personal installment loans, your credit score could potentially go up if you consistently make your payments on time.
Installment Loans With No Credit Check
While you’re looking around for the best installment loan to improve your credit, keep an eye out for terms like “no credit check.” This is a red flag, and it may mean that the lender uses predatory practices to trap borrowers in cycles of debt.
Any credible lender will always want to check the credit history of a new borrower. This is because your credit history says a lot about how likely you are to repay the loan. And if the lender doesn’t care about this, it may mean they’re hoping to stick you with additional fees and interest when you can’t repay the loan.
Beware of terms like this when shopping for your loan. Do your homework and research every lender you’re considering thoroughly. Ask them a lot of questions, read their online reviews, and be sure that they’re the right lender for you.