An installment loan is a kind of funding that is paid back in monthly increments, or installments. Installment loans may come in the form of unsecured or secured funding. Some common types of installment loans include payday loans, title loans, or direct personal loans.
Payday loans are a type of unsecured installment loan. Unlike most personal loans, payday loans often come with higher interest rates, low loan amounts, and extremely brief payback terms. Most payday lenders expect borrowers to pay back their entire loan within fourteen days or less! If you would like more time to pay back your loan, or if you are looking for more than a few hundred dollars in funding, a payday loan may not be the best choice for you.
Title loans are another type of installment loan. Being a secured form of funding, title loans require borrowers to use their vehicle title as collateral in order to secure their loan deal. Title loans share a few similarities with payday loans regarding high-interest rates, small funding amounts, and a very short payback schedule.
Furthermore, borrowers who miss consecutive payments or who default on their car title loan run the risk of their lender repossessing their vehicle. At that point, the borrower’s car would most likely be taken to an impound lot, where it would be held until the borrower becomes current on their loan. If you don’t want to risk losing your car, you may not want to apply for a title loan.
A personal loan is funding distributed by a direct lender. Many personal loans are unsecured, meaning the borrower doesn’t have to use collateral to secure financing. Instead of using collateral, lenders consider a borrower’s credit score and general financial history to determine approval. Lenders for personal loans also look at an applicant’s credit history to determine funding details like loan amounts, interest rates, and payback terms.
Usually, borrowers with a higher credit score will be approved for higher loan amounts, lower interest rates, and more flexible payback terms. However, there are bad credit personal loans designed to connect borrowers with less-than-perfect credit scores to funding when they need it most.