Installment loan – How does it work?
Well, the process starts by submitting your application. Normally, it only takes a few minutes to find out if you have been approved. Following approval, you can receive your loan within the hour if you apply in person or as soon as next business day if you apply online.
Instead of repaying the loan in one lump sum, the payments are spread out over a period of months. The actual amount largely depends on how much you borrowed, your state laws and your loan contract. Failure to do so may result in late charges and non-sufficient funds (NSF) fees.
If your loan happens to go into collection due to several missed payments, then your credit may be negatively affected.
If you are considering to apply for an installment loan with a direct lender, here are some features you might really be interested in:
- Varied loan amount. State regulations determine the maximum amount you can borrow. You can actually borrow more with an installment loan compared to a short-term loan.
- Varied loan terms. Depending on the state you live in, loan terms between 6 to 24 months are available. The longer the repayment term, the more you’ll end up paying in interest and fees. If you are looking for loan term longer than 24 months, check out our best personal loan lenders.
- Varied processing times. If you need money quickly, it’s better to look for a lender who can process and make funds available to you as soon as possible. Because some lenders take longer than others.
- Varied fees and charges. Whatever lenders charge in fees and interest is regulated by the state. Keep in mind that some lenders charge lower fees and interest compared to others.
Installment loans: benefits and drawbacks
- Choose from multiple lenders. There are plenty of options when it comes to installment lenders. Be sure to compare your options online before making the final decision.
- Take time to repay the loan. You don’t really need to get worried about repaying your loan on your next payday. Stick to the repayment plan as set in your loan contract.
- Bad credit is actually OK. Lenders don’t solely depend on your credit rating when it comes to approving your application. You can apply for an installment loan as long as you can demonstrate an ability to repay.
- Get money quickly. If you apply in-store, you can get your money soon after your application is approved. With an online loan, your loan will be transferred directly to your account as soon as the following business day.
- Higher interest rate. Characteristically, installment loans have higher interest rates when compared to loans from a bank or conventional lender.
- More long-term budgeting is required. You’ll need to budget carefully to ensure you can repay your loan in the long term. You’ll also need to account for unexpected expenses in your budget.
- Disreputable lenders. There are numerous notorious lenders operating online who prey vulnerable people with bad credit so always evaluate the lender before applying.
What to watch out for with installment loans
- If you are in need of a loan but have a bad credit, an installment loan can be a great idea if you have a repayment plan in place and know where the repayments will come from.
- If you think the repayments may end up putting a strain on your budget, then you need to reconsider re-applying. If you don’t make your repayments on time, you may have to pay additional fees and it can negatively affect your credit score.
- Before accepting any loan contract, make sure you go through the terms and conditions carefully to get a clear picture of how much you may have to pay in charges and fees.
Even with a bad credit, you still have options to get a loan. An installment loan actually allows you to repay over an extended period of time. It simply means more budgeting, but over time, bad credit installment loans can be paid off, making it less likely to default than an ordinary payday loan.