If you’re like the majority of Americans, you’re only one unexpected or emergency expense away from financial turmoil.
Perhaps you’re already in a significant amount of debt and want to learn more about your options for righting your financial ship. In some cases, you may need money to fund important purchases, pay medical bills, or even ensure you can afford a car repair.
Whatever the reason, you need a fairly large amount of money. Your current income level just isn’t enough for you to get by — though you’re confident that won’t always be the case.
You’re interested in learning about your loan options, and want to understand if a consumer installment loan is a right choice for you.
How do installment loans work? How much money can you borrow? What is the repayment plan like?
Keep on reading to get answers to all these questions and more.
What Is an Installment Loan?
So, what are installment loans, exactly?
In a nutshell, they are loans that a lender gives to you directly that don’t have specific rules regarding what you can use the money for. (We’ll talk more about some of the things you can use the funds from an installment loan for later in this post.)
In general, you can get installment loans in amounts as small as $150 to as high as about $5,000. You’re able to use installment loans for both personal and commercial expenses.
Repayment is in the form of scheduled amounts, usually once per month. In addition to paying back the principal amount, you’ll also need to make monthly interest payments on your loan.
The interest rates and the length of the repayment period, in general, will vary based on the specific terms of each individual loan. Some installment loans should be paid back in a few months. In other cases, you may have years to pay back the loan.
In most cases, the interest rate of an installment loan is fixed. This means that the interest rate stays the same over the entire life of the loan. So, you’ll be able to understand exactly how much money you’ll need to repay each month.
This makes budgeting for repayment much easier than with a variable loan, where the interest rate could fluctuate every month.
Collateral and Non-Collateralized Installment Loans
When you decide to go with a consumer installment loan, you may or may not be asked to put up collateral.
Collateral is something (for example, a car or a home) that you use to secure the loan itself. For example, let’s say the collateral was your car. If you become delinquent and stop making your loan repayments, the lender has the right to seize your car.
This way, even if you don’t make the repayments, the lender will have something to make up for its losses.
The good news is that the majority of personal installment loans don’t carry any kind of collateral. If you’re using an installment loan for commercial purposes, however, you may need to put up some sort of collateral.
This is why it’s so important to be absolutely certain that you’re able to make your repayments on time and in full every month before you borrow.
Be aware that, when an installment loan is offered to you without collateral, you’ll likely need to pay a higher interest rate.
Examples of a Consumer Installment Loan
There are many different reasons why someone might choose to take out an installment loan.
These loans are incredibly versatile, which means that you usually don’t have to provide a detailed business plan or letter of financial hardship to the lender. You can use the money for whatever you’d like, as long as you make your repayments on time.
If you have mortgage debt, then you’re already in the process of using an installment loan. You may use an installment loan to help you to be able to fund the purchase of your home or apartment.
Student loans and car loans are also common forms of installment loans. Education is an excellent investment in your future, after all.
You’re given a lump sum to fund a large purchase upfront, and you repay it with interest over time.
Reasons for Taking out Installment Loans
It’s important to think seriously about your reasons for taking out an installment loan.
For example, let’s say you need to fund a sudden emergency medical expense, pay for your medications, or even receive diagnostic testing. You know that the costs of keeping yourself healthy could easily get up to the $5,000 range and beyond.
That’s a great reason for taking out a consumer loan.
So is borrowing money so that you can make your car payments. After all, you can’t take your child to school or get to work without your car.
Examples of things that aren’t good reasons for taking out a consumer installment loan?
Going on a lavish vacation you’d never be able to afford otherwise, buying expensive gifts for your family at the holidays, and even financing an extravagant wedding.
When you’re applying for a loan, think about whether or not what you plan to use the money for is truly a necessity.
80% of Americans are already in some form of debt. Ask yourself if you can truly afford to take on more, especially when it’s for things you really don’t need.
When you do decide to apply for the loan, we recommend using a budgeting tool to determine your repayment plan. Look for expenses that you can limit or even temporarily eliminate altogether.
Remember that, above all, a loan should be financial help, not yet another financial hardship.
Rules for Installment Loans
Let’s speak more about some of the things you should think about when you’re considering an installment loan.
First of all, a good rule of thumb is to take out as small of a loan as is possible. Think about the minimum amount of money that you can get by on, and ask for that when you speak to a lender.
The reason for this?
The sometimes high-interest rates that accompany these loans. In some cases, it might actually be cheaper to put a purchase on a credit card rather than to take out a loan.
Do your research, and ask multiple lenders about their interest rates before you make your final decision.
Additionally, calculate the amount of your monthly repayment. Ensure that, with your current income levels and expenses, you’re truly able to make it every month. You don’t want to default on your loan, have to pay more fees, and take a serious hit on your credit report.
Also, consider the length of the repayment period.
Do you feel that, yes, you’ll be able to repay the entire amount of the loan in the time you’ve been given? Is there any sort of a penalty for paying it off early? Do you think your current financial situation will remain stable over the life of the loan?
These are all things you absolutely have to consider before taking out a consumer installment loan.
Remember that about 5 million Americans are already in default on their student loans. You don’t want to become one of them, no matter what you’re using the money for.
Applying for an Installment Loan
So, you’ve done your research and have given some serious thought to your current financial situation.
You feel that a consumer installment loan is still the best course of action for you to take. Now, you’d like to learn a bit more about what you can expect out of the application process itself.
You can apply online or in person. Especially if you need to be able to get approved for your loan quickly, we suggest that you apply online. Even if you have bad credit, you may still be approved for your loan.
While every lender is different, there are still a few hard and fast rules you can expect to have to follow.
Let’s take a look at a few of them now.
You need to be at least eighteen years of age in order to apply for any kind of an installment loan.
You’ll also need to be able to provide your lender with a current and valid form of government identification. You’ll need to show them that you currently have an open bank account. (You may also need to provide them with a few months of past bank statements.)
You will likely also need to provide the lender with your social security number. You’ll also need to show that you live in the same state where you’re applying for your installment loan.
If you are currently involved in a bankruptcy, then chances are you won’t be approved for the loan.
Finally, you’ll also need to be able to prove to the lender that you have a source of income.
This helps them to be certain that you’ll actually be able to pay back the loan. Things like pay stubs are an excellent way to prove this. The same goes for a letter of employment from your company.
What if you’re not currently employed?
As long as you’re able to show that you have income each month from some source, you may still get approved.
Again, this is where speaking to the lender directly is a good idea. Plus, taking the time to talk with them may also give you the ability to negotiate with them!
Your Credit Score
So, like many people out there, your credit score isn’t exactly where you want it to be.
One of the best things about installment loans is that in most cases (especially for smaller loans) lenders won’t perform a credit check. First of all, this is good news because even the process of having a credit check run on your account can cause your score to drop.
Additionally, and more importantly, it means that those with bad credit aren’t automatically disqualified from getting approved for the loan.
Even if your lender needs to perform a credit check on you, you’re still likely to get approval. You may need to pay a higher interest rate or take out less money than you initially planned, however.
The truth is that most lenders are more willing to work with you than you might have thought.
Additionally, taking out an installment loan is a great way to improve your overall credit score. You’ll be able to demonstrate that you’re able to pay back a loan on time and in the full amount.
This will give you a serious boost to your credit score. Especially if you want to apply for more loans in the future, or need to make another purchase, this is a strong reason to apply.
Ready to Apply for a Consumer Installment Loan?
We hope that this post has helped you to better understand what a consumer installment loan actually is.
You should also be able to make a more informed decision about whether or not it’s truly the best option for you. If you feel that the terms aren’t a good fit for you, don’t panic.
You have plenty of other options when it comes to different types of loans and credit cards that can help you when you’re in a tough financial spot.
Perhaps you’re ready to start the process of applying for a consumer installment loan. We can help you to be certain you’re making the best possible choice.
Apply for online installment loans now, and keep checking back with our learning center for more invaluable financial advice.