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Installment loans can be described in the simplest way as a loan that is paid back in fixed amounts over a period of time.
The product from the financial institutions, (banks, non-bank financial institutions, credit unions etc.) normally have an interest rate that is fixed.
Arrangement of payment is agreed on by the borrower and lender depending on the income, amount to be borrowed, as well as in accordance with the laws of the state.
Because of the flexibility that comes with installment loans, borrowers prefer it to other types of loans.
Signing a contract for an installment loan means you have clearly understood every detail with regards to the interest rates and other fees.
Another good thing about installment loans is that you can pay back the loan before its due date when you have the money without any penalty.
With that said some lenders, do charge penalties for early repayment so make sure you verify from the lender before you sign the agreement.
Sometimes lenders do agree to you putting a collateral as security for an installment loan. Especially when it is a car or mortgage loan.
The good thing about using a collateral as a security for an installment loan is that you get a lower interest rate which positively affects your repayment amount and tenure of the loan.
The interest rates on unsecured installment loans are much higher.
This is because the lender has to safeguard themselves, just in case there is a default in repayment.
Installment loans and how they work
Getting an installment loan follows the same procedure as most loans, the difference however is in the details.
You first have to put in an application for a loan which in this case is personal installment loans most of the time.
In the application you need to state how much you want and how long you are willing to pay back the loan for.
On the application form for the loan the lender will request some personal information from you such as your income, where you work, age etc.
This information is what the lender will use to determine if you qualify for the installment loans you requested and if the period you will want to pay back the loan is appropriate.
Since all lenders use the information you provide to help determine your loan amount and tenure it is advisable to provide correct information to lenders.
Apart from the information you provide to lenders the interest rate on the loan also is an important factor in determining how much and how long you can pay back the loan.
Another important factor that determines your loan amount and tenure is whether your credit score is good or bad and also if you have a collateral as security for the loan.
In the case where your installment loan is approved, you will be required by the lender to pay back the loan on monthly basis on specific dates or as agreed by both you and the lender.
Secured and unsecured installment loans
Truth be told, when you are in need of extra cash or have an emergency and are able to secure a loan, the feeling is overwhelming.
This is because the loan can help you take care of a medical bill, a funeral, repair a car or if the money is ‘big’ enough, buy a car to enable to you get to work on time.
However, taking loans can be divided into two aspects: secured or unsecured loans.
These two works differently and one may work for someone but wont work for the other.
With secured loans you need a collateral which is used as security for the loan you are taking whiles unsecured loans you do not need a collateral for the loan.
Secured installment loans
To say something is ‘secured’ you will be thinking of stability, strength , fixed, or even something unshakeable.
Well, secured loans give lenders that feeling too because of the collateral borrowers bring.
So that in case of default lenders can fall on the collateral to recoup their monies that was lent.
For this reason, secured loans have a much lower interest rate as compared to the unsecured loans or loans without collateral.
One of the many good sides of secured installment loans is that whiles paying of your loans religiously, you will be building your credit history.
In the case where you have bad credit, you will be repairing your credit history with your repayments.
Due to this as a borrower you must insist your repayments should be sent to the credit bureaus in your location or country where you took the loan so your records can be updated.
Examples of secured loans are home equity loans, secured credit card loans, mortgages, personal loans etc.
Banks and most financial institutions prefer to give secured installment loans to borrowers because they are risk free or if there is any risk at all its minimal.
With secured installment loans, you are able to get more money because the financial institutions are more comfortable due to the collateral in their possession.
The only catch is that the more money you borrow, the longer your repayment plan.
Unsecured installment loans
Getting a loan without giving a collateral as security for that loan is termed as an unsecured loan.
In this type of loan, the borrower does not need a collateral but instead a very good credit history and must have a good income too to qualify for it.
Sometimes lenders call this type of loan (unsecured loans) as ‘signature loans’. The reason being that, in actual fact your signature on the agreement is what seals the deal.
Whiles those who go for secured loans are burdened with loosing their asset when they default, a borrower with an unsecured loan does not have that burden.
Your assets, be it a car, house or any expensive jewelry is safe from being taken away from you by a lender when you default on your repayments.
However, with unsecured loans the interest rates are very high because the lender tries to minimize the risk with lending to you although you don’t bring a collateral as security.
Some examples of unsecured installment loans are car loans, unsecured personal installment loans, credit cards, student loans etc.
How to get installment loans
You can easily apply installment loans from any of the financial institutions.
But first you must be aware of the requirements of the financial institution.
If you want to apply for installment loans from a financial institution, know their requirements to avoid being rejected due to your inability meet their requirements.
The process is quite straightforward. Applying online even makes it much easier and faster than a walk in.
You can find out if your lender has their business online, so you can apply through there. Going to the office of the lender makes the process longer.
Because you will have to go with a lot of documentations and these documentations will have to pass through several stages to get it approved or otherwise.
The online process eliminates all these processes and makes the whole application very easy and fast.
The kind of loan (secured or unsecured) will determine the forms you will fill.
The lender can then have basic information about you as well as some other necessary information to help with the loan processing.
On the forms, you (borrower) will also find all information about the loan.
If you need more clarifications, you can send an email to the lender. Such information on the loan such as the payment amount, payment schedule, interest rate etc.
A borrower with a very good interest rate can bargain for much lower rates than a borrower whose credit scores are bad.
A borrower must always make sure they understand all the requirements and information for the loan they want to take before making any step to sign the forms.
Some lenders add additional charges to the loans they give therefore lenders must read and ask all relevant questions about the loan before agreeing to it.
Installment loans and how they affect your scores
Making sure your credit scores are good is the surest way to having a strong financial life.
Getting credit from financial institutions can be very difficult if you have a bad credit score or history.
To be able to avoid any difficulties, it is best to make sure or try your possible best to keep a good credit score.
With a bad credit, financial institutions who will dare to offer you a loan will do so at a high price (high interest rate).
They do this to be able to avoid or minimize the risk of lending to you.
Installments loans as explained earlier are loans taken and paid in bits and at particular times as agreed by both the lender and borrower.
Due to this arrangement, it is beneficial to take such a loan to pay back gradually.
This payment structure helps you to be a credit history which when is good automatically becomes your visa to getting loans at cheap rates.
On the other hand if there are defaults, this will create a bad credit history for you and this will hunt you in your future search for a loan.
In view of this when taking an installment loan, take an amount that you will be able to pay without any difficulty as well as a payment schedule that best suits you.
Taking a huge amount of money will mean the repayment will be big or you will have a long payment schedule and this can affect your commitment.
Most financial institutions like the banks etc. do send the information of clients payments of a loan to the credit bureaus.
The information sent to the credit bureaus are bought by the financial institutions when necessary.
Installment loans and how they affect your scores continued
Information on the report from the credit bureaus help the financial institutions make decisions on the client as to whether to give them a loan or not.
Their decision to give a client a loan or not is mostly based on the credit history of the client.
If the information on the report is good , giving a loan to the borrower is most likely to happen.
However if the information on the report shows that your credit history is bad, the lender is within its right not to lend to you.
Lending with borrowers with very bad or bad credit history is very risky and most lenders avoid this risk.
With that said, some lenders do go ahead to give out loans to borrowers with bad credit but they do this by giving out the loans with very high interest rates.
High interest rates for these lenders is a form of security as the borrowers repayments are mostly towards the principal amount borrowed.
In America for instance the credit bureaus are many, examples of credit bureaus in America are Equifax and TransUnion.
Deciding to go for installment is the best considering its mode of payment which allows you the borrower to pay amounts in installments and at particular dates.
This kind of arrangement is convenient for most borrowers because they are able to plan towards it, helping them to keep to the schedule.
When installment loans are given to borrowers, the payment schedule is mostly over a period of time.
Some duration of installment loans are relatively short as compared to others that are very long depending on the type of loan.
For example a borrower who takes an installment personal loan will have a shorter payment schedule.
As compared to someone who has a mortgage loan which runs for a long time due to the amount involved.
What makes you qualified for installment loan
When you decide to take an installment loan, you need to also make sure you qualify for it because you can easily be denied loans if you do not qualify for it.
Every loan comes with its own requirements, however there are some universal requirements that every borrower must meet.
Evidence of steady income
The question a borrower should ask him or herself is , how do I convince a lender I can repay the loan?
The answer is simple : by showing evidence to the lender that you have a stable income and you can only do this by showing your pay slips, your tax documents, and for additional evidence you can add your bank statements.
There are loans that a borrower needs to bring a collateral to secure the loan.
Mostly these loans are huge amounts and the lenders need something to be placed in the stead of the money given.
Lenders are more comfortable to give out huge sums of money to borrowers when they bring collateral as security.
With this the lender is assured that if things do not go as agreed there is something to fall on to recoup the money loaned.
Every individual is entitled to one free credit report a year so it is important to take advantage of it.
Checking your credit score before applying for a loan gives you an upper hand because you know what you can and cannot get (money) from a lender.
The truth is every lender will not hesitate to lend to borrowers with good to perfect credit scores.
So it will be to your own advantage if you keep a good credit score all the time especially when you plan on taking bigger loans in future.
Your DTI (debt to income ratio)
Know your DTI and it will save you time of going to the financial institution and being told your DTI is too high so you don’t qualify for a loan.
You can calculate your DTI by putting together all your bills and debts and divide it by your monthly income(gross).
Note : the lower your DTI the more advantageous to you especially if you have plans of taking a loan.
Some organizations pegs thirty five and below as standard or good DTI, thirty six to forty nine as ok and anything above as bad (not eligible for anymore loan)
PROS AND CONS OF INSTALLMENT LOANS
• With installment loans you can get both short term loans for an emergency situations and also long term loans for major financial problems.
• Most installments loans have interest rates which are fairly lower than most other loans.
• Paying your installment loans on time and on the agreed date by both you and the lender helps repair an already credit history or build a new credit history all together.
• The good thing about installment loans is that the interest rates on the loans is fixed and does not change even if the base rate changes.
• It is easy to budget when you take installment loans because of how the loan is scheduled.
The amount you pay is fixed and you pay at a particular date every month, so you are able to budget towards it.
• One thing about installment loans is that you are given more money than you ask for and it can easily lead to you taking more than you can afford.
• Due to the flexibility of its payment, lenders of installment loans are bit strict on their loan requirements.
They make sure your credit history is good enough before giving you the loan.
• In some parts of the United States of America, lenders are permitted to charge some amount when a borrower wants to pay back the loan earlier than agreed.
• When you go for an installment loans such as mortgage and you put a collateral as security for the loan, there is the possibility of you loosing your property if you default.
Below are some financial institutions you can find installment loans
There are so many financial institutions giving installment loans to their clients.
It is however, your responsibility as a borrower to get the best deals that best suits you and you are comfortable with from the lender you choose.
Most traditional lenders if not all offer installment loans and as banks the laws mandate them to conduct credit searches on all their clients who come for loans from them.
The searches they conduct are not the soft credit checks but hard credit checks which goes on your credit report.
It will therefore be wise as a borrower to know your credit history to avoid being rejected by the traditional lenders.
Due to the boom in online lending many lenders have migrated and are doing business online.
And online lenders are therefore offering all kinds of loans and installment loans are part of the loans they offer.
The application processes for online loans are also very easy, fast and convenient hence a lot of people prefer it to walk ins.
An advantage of online loans is that, the lenders conduct soft credit checks on their clients and this search does not affect your credit history.
Most established credit unions also offer installment loans to their clients.
The APR’s (annual percentage rate) of credit unions are much lower than most financial institutions.
Unfortunately for credit unions you must be a member to be able to get a loan from them.
Some however make exceptions , so it will be prudent to find out if the credit union you are going for a loan from has that service available.
Installment loans are available in most financial institutions and have flexible payment terms which is very convenient for borrowers.
However, before you settle on the lender you want to borrower from, make sure their terms and conditions, interest rates and all other fees are the best to suit your current situation.
Taking more than you can handle pushes you to the point where defaulting becomes the only way out.
Installments are structured in a way to make it convenient for anyone who goes for a loan, so take advantage of it and stick to the agreement.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.