If you need fast cash for an urgent expense or want to make a large purchase but break the payments up over time, an installment loan might be your best option. Learn more about installment loans below, including how Wise Loan can help.
What Is an Installment Loan?
An installment loan is a type of debt you pay back in agreed-upon installments over the course of a certain period of time. You agree to borrow a specific amount with interest. Interest is the amount the lender charges you for giving you the loan. Typically, your installment payments include interest (that goes to the lender) and principal (that goes to the amount you owe).
The installments, or payments, you make on such a loan are on a set schedule. One of the most common installment loan setups involves making monthly payments. Many people do this on mortgages, auto loans, student loans and personal loans. Other loan agreements might involve weekly or biweekly installments, which usually means you make payments more often, but they may be smaller than if you made payments monthly.
7 Benefits of Installment Loans
Installment loans are common. You may already have one, and you most likely know people who are paying down installment loans right now. One of the reasons these types of loans are so common is that they offer a number of benefits for the borrower. Find out more about seven benefits you may be able to get when you apply for an installment loan.
1. Quick and Easy Application Process
Personal installment loans often come with quick and easy application processes.
The complexity of the application tends to coordinate with the amount of the loan. For example, a mortgage loan is not quick and easy for most people; that’s because it involves borrowing a lot of money for a long time. Mortgage loan terms can be up to 30 years, after all. Banks and other lenders must do more due diligence than they otherwise would to reduce risks when approving people for home loans.
Compared with mortgage loans, auto loan applications tend to be easier and faster. You might complete an application that’s a few pages online or in a dealership and be approved for the loan that day.
Personal installment loans for lower amounts, such as those you can get through Wise Loan, are even easier to apply for. Our application takes a few minutes to complete, and you can often find out if you’re approved in just a few minutes as well.
2. Installment Loans Provide Fast Cash
Personal installment loans let you access fast cash that you might need for emergencies or other urgent matters. Here are a few ways installment loans can help you get money in your account fast:
- Simple approval requirements. Many online installment loans have simple approval requirements. You often don’t need to find and scan documents demonstrating your current debt, credit history or income. In some cases, all you need to apply successfully for a loan is a valid ID, your home address and a qualified checking account.
- You may not need to improve your credit. Some personal loan lenders, including Wise Loan, don’t require you to have great or even good credit for approval. This means you don’t have to spend time working to boost your bad credit before you can get approved for a loan.
- Next-day, same-day or instant funding if approved. If you’re approved for a loan from Wise Loan, we can fund your loan in as little as one business day. In some cases, you may be able to get funding the same day or even instantly to your bank account.
3. Fixed Monthly Payments
Installment loans are different from revolving lines of credit, such as credit cards. With a credit card or other line of credit, you have a certain credit limit. You can borrow against that limit, pay back the money you borrowed and borrow again from the same limit. How much you have to pay on your revolving credit account every month depends on your terms and how much of the credit limit you’ve borrowed.
An installment loan, on the other hand, has a fixed monthly payment with set interest fees. You know exactly how much you have to pay this month, and it’s the same amount you have to pay 12 months from now (if your loan is for that long). Since you always have to pay the same amount on the same day, it’s also easy to keep up with your installment loan schedule.
It’s important to note that all of your monthly payment doesn’t go toward the principal balance of your loan. So, if you owe $1,000 and pay $50, you won’t owe $950 the next month. Some of the $50 went toward interest.
4. Manageable Repayment Schedule
Having a fixed monthly payment can be a benefit when it comes to managing your budget. If you’re operating on a tight budget, an installment loan is often the most manageable type of debt because you can plan ahead for the payments and know the amount won’t change. Plus, installment loans stretch the payments out over time, often making them more affordable.
For example, what if you needed $2,000 to fix your car so you can go to work or $1,500 to fix your house’s HVAC system to keep things at a safe and comfortable temperature for your family? If you’re living on a budget, you might only have $200 in extra income that could go toward such a thing. You can take out an installment loan to cover the urgent expense and make payments over time that fit your budget instead of coming up with the entire amount right now.
Another thing that makes installment loans manageable is that they’re also fixed in time. As long as you make your payments as agreed, you know exactly when the loan will be paid off, and you won’t have the payment expense anymore. That can help you better plan for your financial future.
5. Build Your Credit With Installment Loans
Your credit score is often a big factor in whether or not you can get an installment loan or other types of credit. However, you can still qualify for an installment loan even if you have bad credit, as some lenders offer installment loans for bad credit designed to provide a second chance and help people build their credit for the future. Typically, you may pay a higher interest rate for these types of loans because the lender needs to account for the larger risk it’s taking while approving you for credit.
When you’re working with a lender for a bad credit loan, it’s important to consider the future implications on your credit. By making all your loan payments on time and as agreed, you may be able to boost your credit for the future. That’s because a timely payment history is the largest factor in your credit score, so demonstrating you can make payments on time is a big deal.
That being said, this tactic works best when the lender you’re working with reports to major credit bureaus. That helps you build a positive credit history across all those files. Wise Loan does report payment history to two of the three major credit bureaus, while most traditional payday loan lenders do not.
6. Higher Loan Amounts for Big Purchases
Installment loans can make larger purchases more possible. Most people can’t fund a home or car purchase out of their pocket, for example, which is why buyers routinely turn to installment loans for these purposes. But installment loans can help you stretch a variety of purchases over time, making them more accessible. Some things you might use an installment loan to buy include, but aren’t limited to:
- Laptops and other computer equipment
- Smartphones
- Furniture
- Recreational vehicles, such as ATVs or boats
- Large appliances, such as refrigerators or washing machines
- Fine jewelry
7. Save on Interest by Paying Off Your Installment Loans Early
While installment loans come with fixed payments that must be made on time, they still provide a lot of flexibility. You may be able to make extra payments on your loan or add a bit to each loan payment to pay it off faster. Just make sure you’re noting that the extra payments should go toward the principal of the loan. Since interest is calculated on the principal amount, reducing it ahead of schedule can help you save on the total interest cost of your loan.
Some lenders do charge prepayment penalties to help make up for the fact that they could lose interest on the loan. Double-check the fine print of your loan agreement or ask your lender about fees and penalties before you plan to pay your loan off early.
Installment Loan Examples
We’ve already hit on some examples of common installment loans throughout this article. They include:
- Mortgages
- Auto loans
- Student loans
- Personal loans
- Loans for specific items like furniture or jewelry
What makes a loan an installment loan isn’t what you buy with it or its purpose. It’s the fact that you agree to borrow a certain amount and pay that amount back with fixed payments monthly (or on another agreed-upon schedule) over a specific period of time. That’s the case with all of the loan types above.
Frequently Asked Questions
How can you get instant cash instantly?
You have two options for getting money fast, but they are both risky. The first option is to sell items online, such as on eBay, Amazon, etc. You can make quick money selling products on these sites. There are risks associated with this. It is possible to lose large sums of money if your attention is not paid to all details. You may also not see the return on these investments if your knowledge isn’t up-to-date. There is also the possibility that the site you sold the product to goes bankrupt, and you could lose all your money.
You can also ask for money from someone. This can be done by asking family and friends for financial assistance. This is where you have to be cautious. If you ask people for money without offering anything in return, they’ll probably say no. Also, asking for money while you are in dire need of money won’t help you earn more money. Last but not least, if you get into trouble again, it is necessary to ask for money again.
Although these methods are possible to quickly make money, they seem risky.
You can get a loan even if your credit is not good.
It all depends on the type of loan you are looking for. It is possible to apply for an unsecure personal loan. You will need to have a better credit score if you want to apply for a secured loan (such as a home loan or car finance).
By paying your debts on a timely basis, you can improve your credit score. To improve your credit score, you should pay more towards your monthly payments.
How can I get money fast without a loan?
Finding a job that pays you for what you do is essential. This could mean working part-time to gain enough experience.
Once you have built up some skills, you should start looking for a full-time job.
You could also try freelancing on websites such as odesk.com or elance.com.
How much do you pay back on a payday loan?
To ensure that you have enough cash in case you ever need it, you should always have an emergency fund. If you’re careful with how much you borrow and where you spend your money, there shouldn’t be any reason why you would have to ask for a payday loan again.
Statistics
- In California, for example, a payday lender can charge a 14-day APR of 460% for a $100 loan.6 Finance charges on these loans also are a significant factor to consider, as the average fee is $15 per $100 loan.1 (investopedia.com)
- For example, CashUSA’s payday loan APRs range from 5.99% to 35.99%, placing them well within the averages for most major lines of credit, including credit cards and bank loans. (timesunion.com)
- Cons Up to 8% origination fee (abcactionnews.com)
- Upgrade The company offers a 3 percent cash back on Auto, Health, and Home categories and a 1 percent cash back on the rest. (abcactionnews.com)
- The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers.89 (investopedia.com)
External Links
consumerfinance.gov
ncsl.org
How To
Why do we need installment loans?
Installment loans are short-term loans that require a minimum payment at regular intervals. They usually last up to one year and provide flexible repayment options. It allows you to repay your loans whenever you like and always has money.
These loans are often applied for by people looking for quick cash, and not concerned about their credit scores. A installment loan is a good option for those who don’t meet the criteria for traditional bank financing.
Before applying for an installment loan, you should carefully consider the amount of money that you can borrow. You need enough capital to cover the cost of interest and fees, plus another month’s worth of payments.
When you are approved for an installment loan, the funds will usually be available within 24 hours. The fee for processing an application is usually around $40. You will be charged an extra fee by most lenders for this service. Compare offers until you find a good deal.
An installment loan may be the right option for you if you are having trouble paying your monthly bills and fall behind. This type loan is for people who have poor credit scores and face financial hardship.
If your traditional bank has rejected you and you don’t have collateral, an instalment loan might be the best option. Your income, employment history and assets will all be considered by your lender. If you prove to them that you can repay the loan they will approve you for a lower amount than you owe. You won’t be in a position to repay your entire debt instantly. Instead, you will have to pay a portion each month.
Installment loans require that you repay the entire loan amount in full before any refunds can be granted. The majority of lenders offer grace periods that allow you to delay payments and avoid late fees.
