pros and cons of installment loans
The benefits of installment loans may make them an attractive option, but it’s also important to consider the potential drawbacks that come with these loans.
pros of installment loans
Installment loans have many advantages. some include:
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- consistent monthly payments: Monthly payments remain the same for the life of the loan, making it easy to create a family budget and pay bills on an ongoing basis.
- credit score improvement: Establishing a clean payment history and no late payments on an installment loan helps improve your credit score.
- refinancing opportunities: If interest rates drop or your credit score improves, refinancing into a new loan can be beneficial because it will likely lower your monthly loan payments or shorten the length of the loan.
disadvantages of installment loans
If you’re thinking about getting an installment loan, be sure to keep some of the drawbacks in mind:
- Fixed Payment: Since installment loans deposit funds in a lump sum, you can’t increase the amount borrowed if you hit a new financial hurdle or an emergency.
- Potentially long payment schedule: Payment periods for installment loans can be long. It’s important to make sure you’ll be able to make your payments on time each month for the full term of the loan you’re accepting. conversely, if you want to pay off your loan early, be aware of the prepayment fees your lender may charge.
- can be costly for poor credit: The interest rate you receive on an installment loan depends largely on your credit score. if you have below-average credit, you may be denied a loan or offered a high interest rate that will make your monthly payments more expensive.
- potential charges: if interest rates drop, you can choose to apply for another personal loan at a lower rate. however, you may need to pay another origination fee to process the loan.
should i get an installment loan?
When deciding whether to take out an installment loan, you need to weigh the pros and cons. For example, if taking out an installment loan can help you refinance your high-interest debt, taking out this type of loan might be a good idea. Also, if you prefer a fixed monthly payment, it may be a better option than using a credit card or line of credit.
However, if you have bad credit, taking out a loan may not be a good idea, unless you apply with a co-signer with good credit to get a lower interest rate. Also, if you prefer to borrow money as needed, an installment loan may not be your best option.
If you decide that taking out an installment loan is the best option for you, make sure you can pay your debt on time. If you default on a loan, you could cause significant damage to your credit score, which could affect your ability to access credit in the future.
where to get an installment loan
Installment loans can be obtained through a bank, credit union, or online lender, but each has key benefits and drawbacks to consider.
Banks are more easily accessible than credit unions, as you don’t need to be a member to access loan products. however, they tend to have more stringent lending criteria.
Also, you’ll likely get a more competitive rate with a credit union or online lender, since they have lower overall costs. Online lenders also have a more streamlined application process, faster approvals, and quicker funding times since everything is automated. But you won’t have the luxury of visiting a branch and speaking with a loan officer face-to-face like you would with a bank or credit union.
The good news is that many lenders allow you to apply for a mortgage, car loan, or personal loan online. personal loans are often approved within a few days, while auto loans and mortgages require a more thorough check of your credit history and credit score.
No matter what loan you’re looking for, we recommend checking the rates of a few different lenders before committing. Many online lenders offer pre-qualification, a process where you enter a few details about yourself and the terms of your desired loan in exchange for a quick decision on whether or not you qualify for a loan with that lender. Prequalification uses a soft credit check, which means your credit score won’t be affected.
alternatives to installment loans
Installment loans aren’t the only way to access the cash you need to make major purchases or pay off debt. here are some other options.
personal lines of credit
A personal line of credit (ploc) is a typically unsecured revolving line of credit account that carries a variable interest rate. These accounts work much like credit cards. request a specific amount of credit, then access the money as needed. refunds are based on the amount of money used.
applying for a plot does not require providing a guarantee, like your house. however, plocs are often reserved for consumers with very strong credit histories, often those with a credit score of 680 or higher.
Generally offered by community banks and credit unions, credit building loans are aimed at those who do not have a strong credit score or have little or no credit history.
With credit building loans, you request a specific sum of money from a lender and make monthly payments on the amount borrowed.
However, in the case of a credit-building loan, you do not receive the cash up front. Instead, the lender deposits the loan amount into a secure savings account controlled by the lender. the consumer makes fixed monthly payments on the loan over a specified period of time, and once the loan balance is paid in full, the lender releases the funds.
The main advantage of a credit building loan is that during the repayment period, the lender will report the payments on time to the credit bureaus. so even though you won’t have access to cash during this period, you’ll still improve your credit score.
alternative payday loans
If you’re a member of a credit union, you may also want to consider an Alternative Payday Loan (PAL). These loans are available to people who have been members of credit unions for at least a month and typically allow you to borrow between $200 and $1,000 for between one and six months.
Installment loans are a convenient option for consumers looking to cover a large expense, an unexpected financial emergency, consolidate high-interest debt, or buy a car or home. But before you apply, it’s vital to understand how the different types of installment loans work. It’s equally important to shop around with different lenders to find a loan product with favorable terms that works for your financial situation.
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