Installment loans allow you to borrow a set amount of money and then pay it back over time. Personal loans and installment loans typically have fixed interest rates and monthly payments. This means you will always know what you owe each month, and when your last payment is due. Let’s say you wanted to borrow $30,000 at a 10% APR with a 60-month repayment schedule. For five years, you would pay $652.12 per month.
What are the best uses of an installment loan?
An installment loan’s versatility is one of its best features. An installment loan can be used to finance a major purchase such as a house or car. Personal loans, which are a type installment loan, can be used to finance a wide range of purchases. You can use them to pay for:
- A car.
- A home.
- Consolidate your debt.
- A wedding.
- Remodeling projects at home
Different types of installment loans
There are many installment loans available, each designed for a specific purpose. These are the most popular:
Personal loan: A lump-sum loan, also known as a personal loan, is usually paid off in between two and five years. The loan is usually unsecured and can be used for many purposes, including to consolidate debt, finance home improvements projects, pay for weddings, or cover unexpected expenses.
Mortgage: A mortgage is a secured loan used to purchase property, typically a home. The loan is secured by the home as collateral. It is usually paid over a long period of time, typically 15 to 30 years.
Auto loan: A secured loan used to purchase a vehicle. The vehicle serves as collateral. The loan is typically paid out monthly and usually in between two to seven years. To calculate your monthly payment, use our auto loan calculator
What if I have poor credit?
There are many options for installment loans for people with bad credit. You’ll need to do your research, compare multiple options and shop around. Each lender has its own eligibility criteria, so make sure to compare the different options. Your installment loan will have a higher interest rate and may incur additional fees such as origination fees.
How an installment loan can affect your credit
Your credit score can impact the amount, terms and rates you are eligible for. Here are some ways that an installment loan can affect your credit score:
Your credit score could be improved by making timely payments. Your credit score is 35 percent dependent on your payment history. Being punctual with your monthly payments will help you improve your credit. Your credit score could be negatively affected if you are late or miss payments.
Your credit score can be improved by paying off the loan in full. Although paying off the loan on time and in full will improve your credit score, it is more likely to be paid off sooner than paying it off as agreed.
It will remain on your credit report for ten years. It’s considered closed once the loan has been paid off. Closed accounts in good standing can be good for credit because they remain on your credit file for 10 year.
How to find the lowest interest rate on a installment loan
Your credit score and financial situation are key factors in determining which installment loans offer the best rates. Knowing what to look out for when shopping is also important. These are the steps you should take to get the best installment loans at the lowest rates.
Your credit score. Check your credit report to ensure there are no errors. You could lose your credit score if you have any discrepancies such as late payments.
Healthy habits are key to maintaining a high credit score. If you have a poor credit history or are trying to build credit, make sure you pay on time, keep your debt-to income ratio low, and think about having credit with a mix.
Investigate eligibility requirements. While credit scores are the most important factor in determining eligibility, lenders might also consider your income and debt to income ratio. Look for lenders who don’t consider credit scores as important and may look at income to determine creditworthiness.
Repayment terms are important. Most personal loan lenders offer repayment terms of between two and five years. However, some may offer terms up to ten years. A shorter repayment term will not only increase your monthly payments but also lower the overall interest rate. You can save money if you are unable to get the best interest rates due to your credit score.