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what is an installment loan

If you make every payment of your installment loan on time, you’re likely to see your score tick up over the period of your loan. But overall, if you’re paying installments loans, you know the exact number you can expect to pay each month. Auto installment loans are, on average, much shorter than mortgages or student loans. A longer loan works out to a lower monthly payment, but when you account for total interest paid, you end up paying more money for your vehicle.

The payment amount is determined by the loan amount, interest rate and number of months of repayment. In most cases, the interest rate will be fixed rather than variable. It can be easier to budget for a fixed payment than one subject to change each month. While interest rates are important, be sure to also pay attention to the amount of time you have to repay the loan, and whether or not there are any fees to initiate the loan, or for late payments.

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Some contracts indicate severe penalties if you miss a payment, so you want to be sure you know what you’re getting into ahead of time. Having security doesn’ mean you have to sell assets to get cash, but it means the lender can sell the asset for a specific amount if you don’t make the payments. Compared to Payday Loans, Installment Loans offer longer personal loans, ranging from 3 to 24 months, and are available both in store and online, depending on your state. With installment loans, the lender is taking on the bigger risk, sometimes accepting borrowers without any collateral, which can mean that the interest rates are a bit higher than at the local bank. But these types of loans serve as an excellent option for those that need an affordable and transparent loan and don’t meet the strict requirements of certain lenders. Since all of our loans have equal installment payments, there’s no worry with getting lost in revolving debt. We listen carefully to your needs to make sure we take the worry out of obtaining credit.

what is an installment loan

One way that it can do so is by diversifying your credit mix. Most lenders like to see that you are able to handle a variety of different types of debt, so having an installment loan in addition to a revolving account might raise your credit score. According to FICO, 10 percent of your FICO score is determined by your credit mix. Our personal installment loans allow you to make necessary and special purchases through a monthly payment plan. Additionally, installment loans—even big ones like mortgages—are considered relatively stable, and therefore have less influence on your credit score than credit card debt.

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With most types of installment credit, you make fixed payments until the loan is fully paid off. With installment loans, you’ll generally be given a lump sum of money, pay this off over a series of installments (hence the name, “installment loans”), and then your loan will be closed. This means you’ll need to apply for a new loan if you want to borrow money again. The terms and the length of your loan will vary from lender to lender. If you are planning to take out an installment loan, see to it that you fully understand the conditions and terms of the loan you agree to. When you know what is being offered, you can deliberately look for the best installment loan for your needs. Further, installment loans can significantly help your credit if you pay as agreed.

  • Banks might offer larger loan limits and longer loan limits than online lenders.
  • To repay the principal and interest, the borrower would make monthly payments of $263 over the next 48 months.
  • As a member, you could also receive a discount on any future loans.
  • If you miss payments or you’re late, your credit score will suffer.
  • Borrowers make different types of purchases on credit cards and also don’t have the added incentive of wanting to keep their collateral.

Being able to take out a personal loan will take the burden off you financially. Shop around for different loans to see who gives the best rates. If you’re a government worker, you may be eligible for a better loan. Most lenders offer an online service meaning you’ll be able to apply from home. The application process for an installment loan can be very easy. For employed persons, this can be as simple as two recent pay stubs.

Installment Loan Definition