What is an Installment Loan?
Installment loans are a type of loan that includes commercial and personal loan options. Borrowers can receive them for various purposes: from paying for unexpected expenses to buying a home. They get the loan amount in one lump sum and repay it in equal monthly payments, also called installments.
What Are the Types of Installment Loans?
Multiple lenders offer different types of installment loans, allowing all borrowers to find a suitable solution. Depending on your purposes, you can apply for the following installment loan option:
Advantages of an Installment Loan
Installment loans are one of the best solutions for everyone looking for extra cash. To get an entire picture of this type of loan, take a look at the list of its main benefits.
Large Loan Amounts
Unlike payday loans, installment options allow you to borrow money for big purchasing. For example, with an installment loan, you can buy a car or even a home.
Stable Monthly Payments
Personal installment loan lenders can’t change your payment amount. After signing a loan agreement, you make equal monthly payments.
Flexible Repayment Terms
Depending on your loan amount, the repayment term generally takes from 2 to 24 months. In the case of mortgage loans, it can even reach 30 years.
Building a Credit Score
Most installment loan lenders report your on-time payments to one of the three major credit bureaus (Equifax, Experian, and TransUnion). Therefore, paying in a timely manner can help you to build your credit.
Can you afford to repay your installment loan earlier? No problems! Many lenders will allow you to do it. However, contact your loan provider to ensure whether it will charge you a prepayment penalty.
Disadvantages of an Installment Loan
However, installment loans have several drawbacks, such as:
Although installment loans are cheaper than payday loans, where the interest rate can reach 400% APR, it is also not the most affordable loan option. Installment loan interest rates can vary from 16% to 100%, depending on your credit. While people with a good credit history can enjoy favorable interest, those with bad credit can face too expensive charges.
Damaging Credit Score
Installment loans can not only help you build a good credit score but also can damage it. Try to avoid late or missed payments, as they can appear in your credit report and complicate getting a loan in the future.