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As the name implies, an installment loan is a loan that you can pay back gradually in installments, as opposed to being expected to pay it all back in full. Most loans, even those for $4,000 do offer payment plans, so one could argue that there are many kinds of installment plans. However, for the sake of being accurate, we’re referring to the set of loans which are specifically referred to as installment loans, in which the borrower agrees to repay the lender a fixed number of static payments.
If you make all of your payments on time and finish paying back the loan in the originally agreed upon time frame, then you’ll usually face lower interest charges. Installment loans represent a great opportunity for a borrower with poor credit because they give you the chance to use your employment and income as credit factors. If you’ve been putting off the idea of getting a loan because you’re concerned about your odds of approval, here are 12 reasons why you might want to try applying for one:
If you’re looking for a way to get back on track and rebuild your credit quickly, faithfully repaying an installment loan on time can help you do that by reliably boosting your score. Installment loans represent an ongoing positive impact on your credit history when repaid in full because they’re due on a monthly basis and the payments are reported to the credit bureaus. This is the main way an installment loan differs from a so-called payday loan – the latter will not help you rebuild your credit. Ironically, many installment loans are just as easy to gain approval for as payday loans, so it’s best to try for an installment loan before settling for another form of alternative borrowing.
While an installment loan definitely carries the same credit rebuilding benefits as other conventional loan types, it’s usually much easier to be approved for one because the repayment amounts are based on your proof of income. As long as the lender can see that you’ve been getting paid a certain amount from your employer for a period longer than 3-6 months, you should have no problem being approved for an installment loan. In some cases, severe negative remarks on your credit report could be used as grounds for denial. Generally, if you don’t have any bankruptcies or severe debt delinquencies on your report, you could still get an installment loan, even with a score in the low 500s.
Installment plans are great for people who have struggled to keep up with their financial commitments in the past because they provide very clear-cut terms about how much you’ll be expected to pay each month and when that money will be debited from your checking or savings account. With that type of consistency and predictability, you won’t have to worry about facing any hidden fees or interest charges that could increase the cost of your bill or cause unexpected charges on your card. Installment loan providers are only allowed to take the amount agreed upon on the date specified in your loan agreement. As long as you honor that basic commitment, you’ll experience a smooth credit rebuilding process overall. This is also why it’s imperative that you’re honest with the lender about how much you make in order to keep yourself from overcommitting.
The idea of applying for any kind of loan with poor credit can seem far-fetched, but payday loans are a rare exception to that rule because the approval doesn’t hinge on your credit score alone. While someone with a credit score below 500 might still face lower approval odds, as long as you’ve been gainfully employed for a while and can prove it, you’ll stand a great chance of being approved for most installment loans.
Installment plans can help you become accustomed to making monthly payments because the amount that you owe each month will not fluctuate. The fixed repayment structure helps you stay on track because you become accustomed to deducting that set amount from your check each time.
With your cooperation, installment loan providers will have access to your paycheck stubs, bank statements, tax returns, and other information needed to determine exactly how much you can reasonably afford to pay back. Some loan types see a lot of predatorial behavior among lenders because they’ll loan people money even though they know the borrower probably won’t be able to repay it. In this way, many alternative lending services are actually setting their borrowers up for failure in the long-term. Installment loans are more sensible than other low-credit options because it’s easier to make sure you’re not overextending yourself.
Not knowing whether you’ll be approved for a loan can be a strong deterrent because you understandably don’t want to have a hard inquiry show up on your credit report for no reason. Luckily, many installment loan providers will offer a pre-approval guarantee, which essentially just means that based on the factors they’ve reviewed thus far, they can see with absolute certainty that you will be approved. Having that assurance should give you the comfort of knowing that you won’t be further damaging your credit score for no reason.
Installment plans can be split up very flexibly over periods ranging from three months to five years, so every kind of financial plan can be accommodated. Whether you’re looking for a short-term boost in funds that will add 10 or 20 points to your credit or a larger commitment that will help you build your credit for the foreseeable future, an installment plan can be created to match your funding and credit rebuilding needs.
Payday loans and installment loans are very similar, and those two terms are often used interchangeably to describe the same lending service. However, a true installment loan differs from your run-of-the-mill payday loan, not only in the way the loan is structured but also by having lower interest rate charges. Many people have come to associate title loans with higher interest rates, and while installment loans for people with poor credit will undoubtedly charge higher interest rates than those designed for prime borrowers, at least you won’t be paying the highest interest rates possible – which is exactly what some payday borrowers are doing.
Having to go into a bank and apply for a loan in person can be a stressful process. It’s definitely much easier and more enjoyable to fill out a form online from the comfort of your home computer or smartphone. The ability to apply online with lenders who don’t conduct hard inquiries also means you have a lot of options on the table that you can freely examine without the fear of having more points taken off your credit score.
There are a lot of things you can do to improve your credit score, but they don’t all carry the same level of impact when a lender actually takes a closer look at your report. Paying back a large installment loan over a long period of time is a feat that tends to impress prospective lenders because it shows that you stuck with a long-term commitment and repaid a decent sum of money to one lender, as opposed to just slowly building your score through many smaller payments. You would think that the score speaks for itself, but lenders do actually look at the history behind the report as well and having installment plans on your record is always a plus.
When you’re having financial difficulties, borrowing a few hundred dollars is never really enough to get you back on track. If anything, taking out a petty loan will only put you further into debt while only giving you a tiny amount of temporary relief. With installment loan amounts being significantly higher than the low-level payday loans out there, opting for this loan type is just a smarter move because at least you’ll be using your credit for a good reason rather than squandering it on a small boost that won’t get you anywhere.
In closing, it’s worth reiterating that many installment loan providers will let you obtain pre-approval on their website in a matter of minutes. You don’t have to fill out all of the paperwork that you normally would to actually take out a loan in order to be approved – just a few basic details about who you are and how much money you make will usually suffice.