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Is an installment loan online right for you?

by Staff writer
28 Jul 2020 at 18:44hrs | Views
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An installment loan can be an excellent instrument in your personal finance arsenal, especially when used properly. Although the term "installment" may sound intimidating or unfamiliar, perhaps you have used one before or someone you know.

The common types of installment loans are car loans, personal loans, mortgages, and student loans. Installment loans can aid you in dealing with lump-sum, high costs that you might not have been able to save for.

Is this type of loan right for you? Here's what you need to know about installment loans. Read on!

What Are Installment Loans?

Installment loans are a means to borrow cash, usually for a one-time large purchase, for instance, college education, house, or a car. When the borrower gets approved by the creditor, he or she obtains a lump sum and pays the loan in monthly payments.

Unlike revolving credit, installment loans provide a line of credit to borrow from money continuously, and once it's repaid, the account is closed. You can learn more at personalmoneynetwork.com/installment-loans about installment loans online.

Installment Loan Types

Installment loans fall under two categories: unsecured and secured. An unsecured loan does not require any collateral, for example, a personal loan. On the other hand, a secured loan needs collateral, like your property or assets.

Collateral serves as a security against the loan. If you default on your payments, the creditor can repossess your collateral. The following are some of the common installment loans you will encounter:

Payday Loans. This type of installment loan is deemed to help workers manage their everyday life until they get their next paycheck. However, with high fees and interest rates, payday loans also trap borrowers in cycles of debt.

Student Loans. A student loan helps borrowers pay for their education. Forgiveness programs, repayment options, terms, and interest rates differ depending on whether they are private or federal student loans.

Mortgages. This installment loan is a secured loan used to fund a house purchase. Like auto loans, your house is used as collateral to secure the creditor, keeping the interest rates lower compared to unsecured loan rates. However, if you cannot meet the loan obligations, your home can be taken away from you.

Personal Loans. This type of installment loan can be used for many different purposes, like a wedding, home renovation, medical expenses, or debt consolidation. The interest rate can differ depending on your credit.

When Installment Loans Help

Installment loans can be used to the following:

- Pursuing higher education
- Buying a car
- Buying a house
- Investing in yourself or career
- Dealing with an unforeseen event
Pros And Cons

An installment loan is not inherently bad or good. Whether they are harmful or helpful to you relies on your borrowing needs, current financial situation, and your credit. As a borrowing option, an installment loan has a few benefits.

One, installment loans have predictable monthly payments because they are made using decided terms, for instance, five or ten years. Second, these loans have fixed interest rates. Also, installment loans have higher credit limits, meaning you can usually borrow more cash with installment loans compared to a credit card.

Moreover, installment loans have a few drawbacks, as well. These loans lack flexibility. Say, for instance, to purchase a car; installment loans are ideal. However, if you need more money later, you might want to consider revolving credit because of its flexibility. Another thing, for some borrowed, the interest rates in an installment loan can be high.

How An Installment Loan Impact Your Credit

With any borrowing form, getting an installment loan can affect your credit either negatively or positively. Keep in mind that the biggest factor in your score is your payment history. It contributes to at least 35 percent in the FICO credit scoring model.

If you make timely payments, then it will undoubtedly help bolster your credit. However, if you do the opposite, then your credit will suffer. Moreover, having multiple credits can be an advantage to your credit score.

If you do not have a loan at the moment, adding one will surely boost your credit. However, only after you get approved. Additionally, it is not recommended to get a loan that you will have to put together to your budget.

What's more, your credit utilization ratio is a notable determinant in your credit score. In fact, according to FICO, it contributes to at least 30 percent of it. If you have a high credit utilization rate because of other loans or large credit, then adding a loan to your account could potentially cause your credit score to drop.

Takeaway

So, is an installment loan right for you? If you are still undecided, make sure to consider any restrictions, additional fees, payment terms, and interest rates on the loan. As long as you handle your borrowing correctly, installment loans can dramatically boost your financial health and buying power.


Source - Byo24News

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