Installment buying allows people to pay for costly expenses they can’t afford at the moment. Wondering whether these types of purchases are the right option for you? Keep reading to learn more about installment buying and your installment buying plan options.
What Should I Know About Installment Buying?
Installment buying is a financing option available to borrowers that want to make larger purchases. A creditor provides upfront money through a loan which the borrower repays in scheduled installment payments. The monthly payment amounts consist of the principal balance and interest fees. The borrower may have to provide a down payment depending on the installment plan.
What Are Some Installment Buying Options?
There are many installment buying options to choose from. The best one for you depends on the type of installment purchase you are trying to make. The repayment terms depend on the installment purchase you make and the creditor.
These are a few popular installment credit options:
Vehicles are expensive purchases, even if you buy used. Buyers often use auto loans to afford the high cost of a new vehicle. Interested borrowers can obtain auto loans at banks, credit unions, or dealerships. A lien is typically placed on the certificate of title during the duration of the repayment process. This signifies that the car is the rightful property of the creditor until the total debt amount is settled.
Qualification for an auto loan depends on your credit score and income. If you have a bad credit score, you may get an auto loan offer with high rates. You can apply for a joint auto loan if your credit is bad to take advantage of your spouse’s good credit history.
Many people use mortgage loans to afford the purchase of real estate. Most commercial banks and credit unions provide mortgage loans. Qualification for a mortgage loan depends on your credit score and income. If you have low credit, you can try applying for home equity loans for bad credit.
Before you apply for a mortgage loan, consider if you prefer a fixed-rate loan or a variable-interest loan. A fixed-rate loan means your monthly payments will always be the same, which can make budgeting easier. A variable interest rate depends entirely on the federal funds rate. Variable rates are a risky option because you can’t predict how much your installment payments will be each month. You may end up saving money or struggling to cover a high payment.
If you can’t afford the cost of post-secondary education expenses, you can apply to get student loans. This installment buying option can help students afford tuition, books, electronics, and supplies. Most students use both federal and private student loans to cover the cost of school related expenses.
Federal student loan eligibility is based on your Expected Family Contribution (EFC), year in school, enrollment status, and cost of attendance. Most students may qualify for private student loans, but eligibility is based on your credit score, income, and enrollment status. Private student loans often have higher interest rates, so many students with bad credit refinance their student loans.
Buy Now, Pay Later Plans
Many major online retailers with mass production work with installment buying creditors to provide payment plans to customers. If you can’t afford the cash price of consumer goods online, you can still complete your online purchase by signing up for a payment plan. Your total purchase cost with added interest fees is split into multiple equal payments.
This installment buying option is usually available when you checkout. Consumers are typically told upfront how many payments they will have to make and the monthly amount. Most buy now, pay later payment options split the total cost into four monthly payments.
Personal installment loans allow eligible borrowers to receive a lump sum of money which is repaid in monthly installments. Eligible borrowers use personal loans for personal expenses, such as medical bills, home improvement projects, and wedding expenses.
Eligibility for a personal loan is based on your income and credit score. Despite low credit, you may still qualify for an installment loan to buy household appliances and various durable goods. There are personal installment loans for bad credit online, so you can get money in your hand quickly.
What Should I Know About Installment Payments?
Installment buying is a great financial option that allows consumers to make smaller payments over a specified period of time. However, it’s essential that you know exactly how much money you will owe when using an installment buying plan.
Financial institutions love to promote the low affordable monthly payments you can make. Don’t be fooled by the affordability! While your monthly payment may be down, you may end up paying a lot more for the convenience of installments.
A good step towards being financially responsible is knowing how much you will pay in interest fees. Keep reading to learn how to calculate your annual percentage rate (APR) and monthly payment amount.
Calculating Your Annual Interest Fee
When you use installment buying options, creditors will inform you of the APR rate. But exactly how much money is the interest payment? Calculate the interest charge to know if financing is worth the amount you will pay in fees.
Multiply your total financing amount by the APR rate. For example, if you apply for a $900 online loan right now and receive a 24% APR rate, you will end up paying $216 in yearly interest fees. If you want to make a costly purchase, consider if you can afford the additional cost of interest fees.
Calculating the Monthly Payment for APR Rates
Once you calculate how much money you owe in interest fees for the year, you can calculate your monthly payment amount. You will need to divide your yearly interest fee by twelve. If you owe $216 for financing, you will pay an additional $18 monthly.
Installment buying can be a beneficial financing option for consumers. You can easily make large purchases and pay the balance through manageable monthly payments. However, it’s essential to know precisely how much money it costs to borrow money. Having a clear understanding of your expenses can help you better manage your finances.