The term installment loan is a broad catch-all that refers to a wide variety of personal and commercial loans. It encompasses everything from student loans to car loans. What all of these types of borrowing agreements have in common is that they are repaid in installments with regular payments toward the principal and interest made according to a predetermined schedule.
Common Types of Installment Loans
The most common types of installment loans are unsecured personal loans. Borrowers who need access to quick cash for just about any reason can apply for installment loans at King of Kash. If they are approved, they are welcome to use the money to cover whatever expenses they have without lender oversight. There are, however, a few other types of installment loans that are worth mentioning. They include:
- Auto loans
- Mortgage loans
- Home equity loans
- Student loans
- Dental loans
- RV loans
- And many others
With the exception of some home mortgages, all of these types of installment loans feature fixed-rate interest. Borrowers are charged a set rate that remains the same over the term of the loan.
Secured vs. Unsecured Loans
Most installment loans are unsecured, meaning they don’t require collateral. Instead, lenders make the decision about whether or not to offer a loan based on the borrower’s creditworthiness and ability to repay it. Since creditors offering unsecured loans take on greater risks, they typically charge higher interest rates. Home mortgages and auto loans are the exceptions to the rule when it comes to collateral. In these cases, lenders use the real property being financed as a form of collateral and usually offer lower interest rates in return.
Compelling Reasons to Take Out an Installment Loan
When borrowers take out personal loans, they’re welcome to use the money on whatever they want as long as they make the payments agreed upon at signing. Some types of financial situations are better suited to resolution through taking out installment loans than others, though. Here are a few compelling reasons that some people decide to apply for installment loans:
Get Quick Cash
Lenders that specialize in offering installment loans typically make the whole application process quick and easy, which means borrowers can get access to quick cash when they need it the most. In most cases, approved borrowers can access their funds in less than 24 hours. Sometimes, they can get approved in just a few minutes. The speed with which these loans can be paid out makes it easier to cover things like personal emergencies, unexpected auto breakdowns, uncovered medical expenses, and more.
Build Credit
Credit scores are assigned based on the information in consumers’ credit reports. Having a low credit score can make it difficult to apply for financing, with most lenders charging higher interest rates for borrowers who don’t make the cut. Installment loans are relatively easy to get as long as the borrower is employed, and making payments on time can be a good way to raise a low credit score or build credit for the first time.
Consolidate Revolving Debt
Many debtors use installment loans as a means of consolidating high-interest credit card balances. These debtors find that it’s easier to pay just one bill at a fixed price each month than it is to juggle multiple credit cards with ever-changing minimum payment requirements. Plus, borrowers who consolidate their existing debt with an installment loan often find it easier to stay on top of payments since they know exactly when the loan will be paid off. Just keep in mind that interest rates for installment loans will be lower for those who have been paying off their credit cards on time.
Spread Out the Cost of Large Expenses
Installment loans make it possible to make expensive purchases then spread out their cost over a longer period of time. Home and car loans are common examples, but the same logic also applies to any purchase made with a personal loan. Spreading out the cost of large purchases makes it easier for consumers to keep track of their finances and reduces their financial burdens so they can maintain an acceptable quality of life.
Are There Drawbacks to Installment Loans?
If borrowers are responsible about keeping track of their finances, there are few drawbacks to taking out installment loans beyond having to pay the interest. It’s often possible to arrange a loan term that allows for manageable monthly payments, making it easy to stay on top of the new financial obligation.
The only real downside is that if borrowers are not able to make their monthly payments on time, they may lose whatever collateral is attached to a secured loan or risk damaging their credit with an unsecured loan. Life can be unpredictable, so some people don’t feel comfortable taking on long-term financial obligations. That said, the alternatives of taking out a line of credit or waiting until there’s enough money in the bank to finance a large purchase are not any better.
The best solution for those concerned about future financial uncertainty is to take out an installment loan that offers low interest and has a loan term that allows for small monthly payments. It may take longer to pay the loan off, but there will be less of a risk of missed payments and subsequent financial problems.
What to Look for in a Lender
Don’t assume that banks are the only financial institutions that can be trusted to offer installment loans. It’s often possible to get better interest rates through specialized online lenders. Look for factors like speed of application approval and cash dispersal, good reviews from previous customers, and reasonable interest rates.
The Bottom Line
Installment loans are one of the most popular solutions for people who need quick cash but don’t want to take out revolving lines of credit. They’re more affordable and have better terms than payday loans, and often require no collateral. Debtors just need to make sure to pay the monthly installments on time to avoid damaging their credit scores or losing the collateral associated with secured loans.
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