How Do Online Installment Loans Work?
Given the current economic conditions, saving can be a difficult task. Statistics show that approximately 69% of Americans have less than a $1,000 in their account. In trying circumstances, one might need to take out large sums of money and that’s were online installment loans come into play.
What Is an Installment Loan?
According to SimpleFastLoans.com, a reputable online lender, an installment loan is a financial product that allows borrowers to receive a large sum of money, that they must pay overtime. These loans often carry a fixed interest rate and require regular monthly payments.
Installment loans come into action when consumers need to pay for items that are outside of the amount of money they have. The terms of these loans are always clearly laid out on the contract. It will include the duration, interest rate, possible penalties, and other conditions.
Types of Installment Loans
One of the most common types of installment loans are mortgages. The loan amount that the borrower receives is guaranteed by a specific real estate property, and the borrower must pay back with a predetermined payment plan. There are both fixed-rate mortgages and flexible mortgages.
Motorcycle loans are also secured installment loans, and the bike functions as a collateral. These are available with fixed interest rates and several different duration plans.
Auto loans function similarly to motorcycle loans and are secured installment loans. The auto vehicle serves as the collateral. There are several flexible loans available depending on the type of the vehicle the borrower is looking to buy.
Boat loans are secured installment loans. These typically have fixed interest rates and set duration for payments. Additionally, the boat will serve as the collateral in the lending agreement.
Student loans are becoming an increasingly large industry as the cost of education continues to rise. It’s a lump sum of money, that finances higher-education expenses. The payments are deferred during the duration of the degree. Sometimes lenders will provide a six-month grace period after a degree.
Credit-builder loans are one of the most interesting forms of installment loans. During these loans’ banks will hold the money, until the borrower is done making all the payments. Once all the payments are made, the bank releases the money and lets the borrower build up credit scores.
Personal loans are unsecured installment loans, that are available for individuals with bad credit scores as well. These are a fast-growing form of installment loans, where lenders provide a lump-sum of money at high interest rates and set durations.
There are several benefits to online installment loans, which is what makes them so popular. Here are the main benefits borrowers get;
- Flexible Payments – Payday loans are typically due on specific pay dates with no exception. However, installment loans have smaller monthly payments, that are easier to manage. It won’t be a struggle to make ends meet while making payments at the same time.
- Lump-Sum of Cash – Another advantage of the longer terms is that borrowers can get significantly higher loan amounts. These higher amounts make installment loans versatile. The combination of a large loan amount and manageable payments will allow borrowers to avoid taking multiple loans.
- Funding Speed – One of the most attractive benefits of installment loans is the speed of service. The lump-sum amount is typically transferred into the applicants as early as the next day making installment loans incredibly viable in emergencies.
While there are several advantages to installment loans, there are certain drawbacks as well.
- Unscrupulous Lenders – Borrowers are becoming increasingly aware of the impossible nature of payday loans. That’s why certain lenders are increasingly marketing payday loans as short-term installment loans, and borrowers should definitely avoid these at all costs.
- Hidden Payments – As the online installment loan concept is relatively new, there are several chinks in the process. Certain negative vendors that are looking to exploit customers will place hidden charges. These can be for prepayment, and borrowers need to properly do their research before taking an installment loan.
The Loan Process
The installment loan process is very simple. Applicants can access vendors through their websites. These websites house easy to navigate applications that require certain necessary financial information. Users will typically have to include their general details, social security number, and credit score.
Reliable vendors will also ask the applicant to disclose why they’re looking to take the loan. Once the borrower submits the application, the lender begins reviewing. The money is transferred the next day upon approval, and the borrower must make monthly payments for the duration of the loan. These payments will include the original amount along with the interest.
How Installment Loans Affect Credit Scores
According to PlainGreenLoans.com, another online lender, Installment loans can be a tool to help build an individual’s credit score, but it all depends on making payments on time. If the borrower fails to make the payments, the credit score is going to drop. However, if the borrower can make the payments on time and report them to the credit agency, the score is going to increase. The key is acquiring manageable loans with flexible payments that help the borrower be on time.
Installment loans may not be a good option for everyone. If you can’t qualify for one, here are three major alternatives that may pique your interest:
- Title Loans – Title loans are secure loans that involve the borrower providing an asset they own as collateral in the loan contract. Vehicles are the most often form of collateral in these types of loans.
- Peer-to-Peer Lending – As the name suggests, peer to peer lending involves individuals that have good credit scores forming a loan contract between themselves.
- Credit Unions – These are financial cooperatives that are member-owned and work on a non-profit basis. Members get very good rates when looking to borrow money.