You’ll find a variety of loan options on the market, including credit cards, auto loans, and even payday and student loans. Regardless of the type you choose, they all tend to fall into two categories. They can either be revolving lines of credit or online installment loans. Typically, the installment loan allows you to borrow a specific amount of money from a lender. You have to agree to pay it back, along with interest, in monthly payments as agreed upon by you both.
What Are Online Installment Loans?
Of course, the installment loan allows you to get the money you need, and you agree to pay fixed monthly payments for the duration of the term until it is paid off. If you were to borrow $10,000 with a five-year term at six percent interest, you’d likely pay almost $200 a month for those five years (60 months).
You can’t think in terms of credit cards, where you would get a revolving line of credit and have a set limit as to how much you can charge to the card. Plus, a credit card allows you to pay it back as quickly or as slowly (up to the minimum payment) each month so that you can re-use the money with time.
While the example mentioned earlier was a six-percent interest rate, this will change and depends on a variety of things. The lender is likely to look at your annual income, credit score, and debt-to-income ratio. This number tells the lender how much you can borrow based on what debt you already have in comparison to your income (the money you bring home).
Lenders are likely to ask you a variety of questions to ensure that you are creditworthy. This means that you have a steady source of income, make your payments on time, and don’t have a lot of debt currently.
Sometimes, lenders are called subprime because they lend money to people with bad credit or high DTI ratios. However, you can expect to pay higher interest rates and may have less favorable terms, as well. For example, you might get a lower amount of money and have to pay it back sooner.
Getting a Loan
Installment loans are usually easy to get because you can apply for them directly from the lender’s website. You don’t have to go to a physical location, which saves you time and money. Even if you’d like to try to get one at your credit union or bank, you might be able to apply online. In fact, it might be best to try these places first because they might give you a discount on your interest rate because you bank there.
If you’ve already tried your local banks without success, you can shop online for these types of loans. However, it is essential that you research each company thoroughly before applying. You should also submit applications for multiple (up to four) loans at once because it will show up on your credit report as a hard inquiry. This means that the lenders have checked your history to make sure that you’re creditworthy.
While the hard inquiry is normal, it does adversely affect your score for a bit (though only by a few points). Therefore, it’s best to do it all at once, so that it only shows up once on the report.
Once you have a few prospects that are willing to give you online installment loans, it is important to read the fine print for each one so that you’re well aware of the costs. You can also find out what happens if you default and what penalties there are for paying off the loan early. Consider researching loans today to find the best option for you.