If you read financial advice columns or websites, you may wonder if an installment loan is right for you. This common type of loan can be a great way to build credit, or to improve a bad credit score. But before you take out an installment loan, it is helpful to learn more about what it is — and how it can help or hurt your credit, if you are not careful.
Installment Loan Basics
An installment loan can be any type of loan that is repaid over time with regularly scheduled payments over a set period of time. The loan term can be anywhere from just a few months to 30 years. A borrower takes out a specific amount of money, and repays the loan over time, with interest. Many types of loans qualify as installment loans, including mortgages, personal loans, car loans and student loans.
Installment loans can be incredibly beneficial to anyone who needs a predetermined amount of money and has the financial discipline to pay back that amount over time. In contrast to payday loans, which offer a small amount of money for a short period of time (at very high interest rates), an installment loan is usually offered for people who need to borrow larger amounts of money for a longer period of time. They typically have much better interest rates than other types of credit, including payday loans and credit cards. Repaying an installment loans involves committing to paying a fixed amount of money each month for the entire term of the loan.
Installment Loan Benefits
One of the key benefits of installment loans is the ability to get the entire amount of money that you need, often within days or even hours of applying for the loan. Depending on the type of loan, this money can be used for a number of purposes, from purchasing a car or house to paying for higher education or even for funding a vacation. Personal loans are a form of installment loan that allow you to put the money towards almost any purpose. That could include updating your home, paying for a wedding or eliminating other forms of debt.
Another advantage of installment loans is that they can often improve your credit score. Your credit score is determined using a number of factors, including the type of debt that you have, your total debt load, and whether you make your payments on time. Making regular, on-time payments through an installment loan can increase your credit rating. It can also help to boost your overall score because it is a different type of debt than credit card debt. And if an installment loan helps to reduce your overall debt, then your credit score will be improved in this way as well. Before committing to an installment loan, make sure that you understand the terms and conditions, including the interest rate.
Whether you use an installment loan to pay for a vacation, buy a new car, or pay off debt, it is critical that you make the required payment each month, on time. Being responsible with installment loans can boost your credit, saving you thousands of dollars on future loans because a higher credit score usually means a lower interest rate. By the same token, being irresponsible with installment loans can make it incredibly difficult to get a loan in the future — or to get a loan at a decent interest rate. If you take out an installment loan, know that you are committing to making monthly payments for the entire term of the loan, and adjust your budget accordingly.
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If you would like to learn more about installment loans, contact us today for more information or apply for a loan online via our easy-to-use application form!