Most of us need additional funds at some point in our lives. While some people don’t like the idea of borrowing, others realize how helpful taking out a loan can be, especially when you need money urgently. With the proper information, the chances of getting a better deal are much higher, so make sure you are well informed before deciding to take out a loan.
Installment loans are typically considered one of the most affordable loans you can opt for, and they are something you should consider if you are thinking about a home renovation, paying for a wedding, or getting a new car.
What Is an Installment Loan?
An installment loan is one of the most popular types of loans where you borrow a certain amount of money, and then repay it with interest over a series of fixed payments called installments.
These payments are usually made monthly, but they can be made weekly, bi-weekly, or on a different schedule that is determined before taking out a loan.
Installment loans are mostly used to cover mid to high expenses such as buying a new house or apartment. These costs are usually too much to handle at once, so getting an installment loan and spreading payments over an extended period can make them more manageable.
Common Types of Installment Loans
Most people are not familiar with the term installment loans, but it actually includes some types of loans most people choose:
- Car Loans are used to purchase a new vehicle. Monthly installments are usually paid over 12 to 96 months, although not all lenders issue loans within that range. If you fail to maintain the repayment schedule, your newly bought vehicle acts as a collateral, and a lender may repossess it.
- Mortgages are installment loans used for buying a house. They are usually repaid over 15 to 30 years with monthly payments. Like with car loans, your property acts as collateral in case you don’t follow the monthly payments. Mortgages usually come with lower interest rates since they are considered secured, and some even have fixed rates that don’t change over time.
- Personal Loans can be used for a variety of purposes, like debt consolidation or paying off sudden unexpected expenses like medical bills. They don’t require collateral like your car or house, but they come with slightly higher interest rates.
How Do Installment Loans Work?
Lenders need some kind of security that you will be able to pay back the borrowed amount, so that’s why some loans come with collateral. Most lenders require that you have a job with a steady paycheck to ensure that you will be able to pay each installment.
Depending on the lender, you can make payments through automatic monthly deductions from your bank account, direct deposit at the store, or over the phone; it’s up to you to choose the most convenient option.
Paying off each installment on time will help you improve your credit score, which can come in handy the next time you are taking out a loan. A higher credit score means that you will be able to borrow a higher amount or to negotiate a better interest rate.
What to Consider When Getting an Installment Loan
Getting an interest rate that allows you to make affordable monthly payments should be a priority when getting an installment loan. Lenders factor in many different aspects to calculate the risk and give you a specific interest rate based on your credit score, income, other debts, debt to income ratio, and your employment. Lenders must be assured that you can repay the loan.
Interest rates vary depending on your financial situation, but also on the loan terms, which refers to the duration of repayment. While shorter terms typically yield higher interest rates than long-term loans, the amount of interest paid on a short term loan is usually lower, due to less time for interest to accrue.
That is why it is crucial to evaluate your financial situation and figure out what works best for you. Some people want to repay the loan as soon as possible, while others like to stretch it out due to smaller installment payments. Whichever you choose, make sure it fits your budget, and have an installment you are comfortable paying each month.
Keep in mind that the borrowed amount is fixed, although you may be able to refinance your loan to receive additional funds. CreditNinja does not have penalties for repaying your loan early, although some other lenders might charge you additional fees. CreditNinja also typically allows installment borrowers to refinance.
Benefits of Installment Loans
Installment loans are a great way to improve your current financial situation. These loans come with a simple borrowing process, and there are no hidden fees you should worry about.
Once approved for a certain amount, you get a specific interest rate, and have to pay fixed installments over an agreed period. That way, you always know how much you need to pay each month, and you can plan your budget accordingly.
At CreditNinja, we offer reliable financial support whenever you need it. Our installment loans come with flexible terms and can be used to improve your financial situation quickly.
You can get your cash in just 1 business day after application approval, so start one today and see what we can do for you.