Online Installment Loan Basics Everyone Should Know
When consumers look for solutions to financial problems the most common choices is to borrow on credit. Today there are a host of choices available from traditional financial institutes, credit unions to a network of money lenders who operate through financial help websites. If you are looking for a loan then you might already have researched options and may be made up your mind for an installment loan online. One of the reasons for selecting an installment loan as the solution is due to its ability to facilitate budgeting, as it requires a fixed monthly payment throughout the term.
Whether you are willing to apply for an installment loan online or through a storefront, you would be glad that you got yourself educated about various basics of installment loans.
How do Installment Loans Work?
Installment loans are designed to be scheduled in advance so that the borrower can repay it over a timeframe in affordable chunks or installments. The repayment window is typically on a monthly basis and may or may not involve collaterals. Every time you payback a portion of the principal amount the interest as well as gets deducted reducing the installment loan debt. Auto Loans, Student Loans, Mortgages, and Personal loans are examples of installment loans. The generic installment loan process can be understood as below:
- A borrower applies for an installment loan by filling out an application form either online or at a storefront with personal details like name, address, phone number.
- The lenders or financial help website staff then work along with the borrower on various options based on factors like the purpose of the loan, down payments, loan terms, payment schedule, wand installments or payment amounts. A network of lenders can be accessed by the online application and also borrowers might get educational information like if they plan to take a loan for longer terms their monthly payments would be lower or details about potential extra charges for late payments, etc.
- Although many responsible lenders might offer no credit check loans, they would also review the borrower's creditworthiness using a soft credit check. The borrower’s credit score is instrumental in determining the loan amount and terms on which the lender might extend the credits.
- Once the application is approved, the borrower needs to sign a loan agreement. Afterwards, the loan amount is sanctioned and gets credited into the borrower’s bank account.
- In addition to interest charges, borrowers generally have to pay other charges for the application processing fees and loan origination fees. The borrower is expected to retire the loan by making regular payments at a fixed interest rate over a period of time. Also, borrowers can pay off the loan prior to the end of the term in order to save interests. Be careful as few lenders may impose prepayment penalties for certain loans.
Other Installment Loan Good to Know Basics
Fixed and Lower Interest Rate:
Installment loans come at a lower interest rate as compared to the line of credits and a few other loan types. Also, for all the duration of the loan term, the interest rate remains fixed even if the market changes making it easy to set a budget.
Credit Score Determines Your Monthly Payment:
it is possible to secure an installment loan even with poor credit, however, most lenders would approve at higher interest rates. Your credit score notably determines how much interest rate you will charged. It is a good idea to check your credit score and fix any discrepancies, if you have proof that some of the information in your report is incorrect, discuss it with potential lenders. Better FICO and credits scores along with the other repayment factors like the loan term and amount being borrowed will determine the cost of your loan.
Tip: be sure to check all of the fine print of the loan, compare the total cost of borrowing with your other options.
Stable Income Proof:
Most lenders will check your credit history as well as can demand proof of income. Showing your regular income proof (may be in the form of pay stubs if any) can improve your chances to demonstrate to lenders that you can repay the loan. Keep yourself equipped with bank statements, paystubs, benefits letters, tax documents or any other form of stable income proof.
Delay/ Failure to Repay Costs You:
Secured installment loans may grant you a loan secured by an asset like a certificate of deposit, chattel (personal possessions), equity in your home, etc. Due to multiple circumstances if the borrower becomes incapable of repaying there is an element of possible forfeiture of the assets used to secure the loan or risking default. Remember, an installment loan that has been paid in full will be reflected on your credit profile for up to 10 years from the date of last activity while late payment history might occupy the place for up to 7 years.
Always Borrow Responsibly:
Installment loans are can be more affordable that revolving credit finance options like credit cards and borrowers often can get approved for more than they require. So make sure you borrow only the amount you can repay and avoid the temptation to borrow excess funds just because it’s approved by the lender.
An installment loan can be a valuable financial tool to fulfill personal money needs, provided you do your homework and seek a responsible lender who is legit and offers favorable terms. Loans secured in such a manner definitely put you in control of your finance to set monthly payment that fits your budget along with the concrete vision of the time frame in which you would be free from installment payments.
Michael launched Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.