Do you need to make an emergency auto repair, take care of a medical bill that’s been hanging over your head, or even just pay off one or two regular bills before your next payday?
One of the best ways to do any of these things is by applying for an installment loan. An installment loan is a personal loan that you can use for almost anything you want.
Installment loans are great. But there is one question that many people ask before taking one out: “Do installment loans hurt your credit?”
The truth is that installment loans can drag your credit score down if you don’t make payments on them once you obtain one. But there are also ways they can give your credit score a boost when used properly.
Here are some ways you can use an installment loan to improve your credit score over time.
Apply for an Installment Loan Through the Right Lender
If you’re in the market for an installment loan, it won’t be hard to find one. There are so many companies out there that will help you get your hands on money fast in the form of an installment loan.
But that doesn’t mean you should trust just anyone to give you an installment loan! You should look for a company that has lots of experience in the loan industry before applying for a loan through them.
Additionally, you should make sure that a company has positive reviews from past clients before putting in a loan application with them. The last thing you want to do is work with a predatory lender that’s going to take advantage of you.
Don’t be afraid to do some digging around to learn about different loan companies. It’ll help you find one that will make it easy for you to get an installment loan and pay it back within a reasonable amount of time.
Be Careful About How Much Money You Borrow
When you take out an installment loan, you can borrow anywhere from $500 up to $5,000—and even more in some cases. But that doesn’t mean you should take out a loan for the maximum amount of money offered to you.
If you’re taking out an installment loan to make a $650 repair to your car, borrow $650. If you have a $1,275 medical bill that you want to pay off, borrow $1,275.
Some people get carried away once they realize they can obtain an installment loan and borrow more than they need. Be careful about how much you borrow and make sure you’re going to be in a position to pay it back.
Set Up a Realistic Repayment Schedule
While you’re in the process of taking out an installment loan, you’ll have the option of working with your lender to create a repayment schedule. You can talk to your lender about how much you feel comfortable paying every month to pay off your loan.
Generally speaking, it’s a good idea to make sure that the amount of money you pay to your lender isn’t more than 10 or 20 percent of your monthly income. If you go any higher than that, you’ll find yourself asking, “Do installment loans hurt your credit?”, when you realize you can’t make a payment for a few months.
Many lenders are flexible when it comes to hammering out the repayment terms on an installment loan. Try to come up with a repayment schedule that will allow you to pay back your loan without a problem.
Avoid Missing Payments at All Costs
If you’re a few days late on one of your installment loan payments, you might not think that it’s such a big deal. What’s the harm in making your loan payment on July 3 as opposed to July 1?
It is a big deal, though, as missed payments are one of the ways in which an installment loan can hurt your credit score. You’ll often see your credit score go down when you miss even one payment on an installment loan.
Circle your calendar or, better yet, set an alarm on your phone every month so that you don’t forget to make installment loan payments. By making your payments on time, you’ll show that you’re a responsible borrower and help to fix your credit score.
Pay Down Your Installment Loan as Quickly as You Can
Can you afford to pay a little bit extra every month to pay down your installment loan sooner than expected? If so, do it!
Installment loans can be useful tools for those who don’t have a bunch of money socked away in their savings accounts. But it’s smart to pay them off quickly if you can.
When you consistently pay on your installment loan, you will see your credit score start increasing. You will have proven that you can be trusted to take out a loan and pay it off.
Check Out Your Credit Report and Credit Score Every So Often
Before you take out an installment loan, check your credit report and your credit score to see what kind of shape they’re in. Even if your credit isn’t great, it shouldn’t stop you from getting approved for an installment loan.
Check your credit report and credit score as you work towards paying off your loan as well. You’ll enjoy seeing the positive impact that you have on your credit report and credit score by staying on top of loan payments.
Check your credit report and credit score a few months after your loan has been repaid, too. At that point, you should notice that your score has gone up a lot as long as you didn’t miss any payments when paying back your loan.
So, Do Installment Loans Hurt Your Credit? Only If You Let Them!
Far too many people allow the question, “Do installment loans hurt your credit?”, to stop them from applying for one.
If you’re not responsible with an installment loan, it could come back to bite you later. But if you put a plan in place to pay back your installment loan within a set number of months, you can improve your credit and put yourself in a better financial position by taking one out.
Here are some other articles you might wish to read:
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