Loans have helped many borrowers fulfill their dream of
buying a house or a car. Still, some people resist taking a
loan with the mere thought of being crippled with debt
repayments. However, that is no longer the case with
installment credit.
When buying big-ticket items, it's easier to pay for them in
monthly installments than paying all at once.
Installment loans
allow you to borrow money when you cannot afford something.
If you have been thinking about getting an installment
credit, here are some questions to think about before taking
the plunge.
What is Installment Credit?
Installment credit, also known as installment loans, is a
closed-end loan option that allows you to borrow funds for a
specific amount and repay in installment payments over a set
period. The amount of your loan and each
monthly payment
is usually predetermined, along with the number of monthly
payments you would likely pay over the agreed loan term. In
most cases, you get to decide your
loan term
from a few months to years, helping you to set your monthly
payments according to your budget.
Due to their features and functionality, installment credit
loans are ideal for financing significant expenses like
buying a car, a home, or any major appliance. That doesn't
mean you can't use installment loans for small cash needs.
The following examples of installment credit will show you
the versatility of this popular form of credit.
What are Examples of Installment Credit?
Installment loans can be either in a
secured form or unsecured form. While secured loans are those loans that require
collateral, unsecured loans need no collateral at all. Every
type or
example of installment loan
falls under either of the two forms. In addition, each type
of installment credit is differentiated based on the purpose
for which you may need a loan. Here are the common examples
of installment loans, along with a short description of each
that will help you understand them better:
Installment Credit
- Auto Loans
- Mortgages
- Student Loans
- Personal Loans
What Factors Determine Your Installment Credit Loan
Eligibility?
If you're considering getting an installment credit, you
would undoubtedly want to know how to qualify for this loan.
Here are a few common factors that most installment loan
lenders assess to determine your eligibility:
Your age: A government-issued document will
be needed to prove you meet the minimum age requirement.
Ability to repay: Proof of a steady source
of monthly income is required to show that you'll be able to
make payments on time.
State of residence: You need to present
proof of your residence as the laws regulating installment
loans vary from state to state.
Credit score: Generally, a soft inquiry is
performed that doesn't adversely affect your credit score to
check your payment history.
What are the Advantages and Disadvantages of Installment
Credit?
If you're considering an installment loan to help your
finances, you may want to weigh its advantages and
disadvantages. We unfold the pros and cons of installment
credit to guide you in making the right decision:
Pros of Installment Credit
-
The most significant
advantage of installment credit
is that you know what your monthly payment amount will be.
This can, in turn, help you plan your budget accordingly
to avoid missing even a single payment.
-
An installment credit makes it easy to cover significant
expenses, finance your big purchases, and pay later in
multiple installments. These payments are usually
affordable and manageable without burdening your budget.
-
By getting an installment loan and making regular
payments, there is a possibility to build or rebuild your
credit scores. You can check with your lender to ensure that your
on-time payments are being reported to the credit bureaus.
Cons of Installment Credit
-
Unlike revolving credit, an installment credit only allows
you to borrow a set amount from your loan eligibility
amount. You will have to apply and fulfill the
requirements for another loan if you need additional
funds.
-
In the case of long repayment terms, you might feel a
fierce financial commitment to make regular payments for
an extended period. If you think you can pay off your loan
early, you can check whether your lender charges any
prepayment penalties or not.
We never want you to look at the advantages of a loan
without fully considering the potential disadvantages when
you consider borrowing money. Though there are a few
drawbacks of installment credit loans, there are some pretty
clear benefits, which is why they are considered safer
options for borrowers.
How Are Installment Credit and Revolving Credit Different?
No two types of credit are precisely alike. And when you are
planning to borrow money, having a clear understanding of
different credit options is crucial. For
Installment Credit
|
Revolving Credit
|
A lump sum loan amount is provided on approval
which has to be paid back with interest in
scheduled monthly payments until the loan is
paid off.
|
A credit limit is provided on approval, and
the borrower can keep withdrawing any amount
at any time within the established credit
limit.
|
The interest rate of installment loans could
be fixed or variable. However, they come with
lower interest rates than revolving credit in
most cases.
|
The interest rates of revolving credit such as
credit cards are higher than installment
loans.
|
Although the maximum loan amount of
installment loans depends on various factors,
it can be a suitable funding option for large
ticket purchases.
|
A revolving credit might be best for someone
who needs to borrow a relatively small amount
of money to fund smaller debts or expenses.
|
Can Installment Credit Loan Help Improve Your Credit Score?
If we consider the payment history element of the credit
score calculation, an installment loan could positively
affect your scores if you make all the payments on time.
However, these effects are indirect and may not be seen
immediately.
In the same way, if you fail to pay the scheduled payments
or miss any of your installment credit payments, you can
expect to see a drop in your credit score. Since many
installment credit lenders consider your needs while
deciding your repayment plan, you can choose a plan that you
can stick to and works in your favor.
Thinking About Applying for an Installment Loan?
You can get an installment credit to overcome various
financial hurdles. From buying your dream house to paying
unexpected bills, CASH 1 offers you different installment
loan options based on your loan requirement. You can qualify
for a comparatively more considerable loan with secured
installment loans. On the other hand, unsecured installment
credit types are more suitable for small cash needs. You can
contact a loan officer to know more about our loans or apply
online for installment loans to get your funds in the blink
of an eye.