What Are Installment Loans?
When it comes to getting a loan, you might be wondering what are installment loans. These are loans that you pay back in a set amount over time. You typically make two payments per month, which may be as long as 30 years. The benefits of an installment loan are that your payments are predictable, and you can improve your credit score in the process. These types of loans are commonly used to help people who need financial assistance but don’t have the cash to pay in full all at once.
Predictability of payment amount
One of the advantages of installment loans is the predictability of payment amounts. These loans are available in many different forms and can range from unsecured to secured types. As the name suggests, installment loans are secured, and collateral can range from a home, a car, or even an assignment of wages. The benefits of secured installment loans include lower interest rates, predictable payment amounts, and fixed repayment terms. Most importantly, a fixed payment amount allows you to budget and make sure you don’t miss any payments.
The other major benefit of installment loans is their predictability. Unlike a line of credit loans, installment loans are paid back over a longer period of time, so you can budget accordingly and avoid missing any payments. Moreover, an installment loan should not stretch your budget too far, which means it may prove difficult to meet the entire payment if an emergency arises. Hence, borrowers can plan accordingly and choose to take a smaller number of installments to lower their monthly payments.
Interest rates on installment loans
In general, people who need money for large purchases should consider an installment loan. Interest rates for installment loans are often low compared to other types of credit. In addition, installment loan lenders must abide by state laws regarding maximum interest rates. Most states cap interest rates on installment loans at between 17 and 36 percent. Five states do not have caps on interest rates on installment loans. Therefore, consumers should shop around before applying for an installment loan.
Credit rating plays a large role in the approval of an installment loan application. Many lenders look at a borrower’s credit score from one of the three main credit reporting agencies – Equifax, Transunion, and Experian. While these credit scores aren’t always used as the sole factor in determining interest rates, they are important for lenders to consider when offering a loan. However, your credit rating can still affect the terms and interest rates of an installment loan.
Refinancing into a new loan improves your credit score
Refinancing into a new mortgage, installment loan, or other loan is a great option if you’re having trouble making your payments each month. By refinancing into a new loan, you can lower your payments while extending your repayment period and switching from a variable rate to a fixed one. However, keep in mind that refinancing into a new loan may require additional lender fees, which can detract from the benefits of the loan.
In addition to paying your bills on time, your installment loan lender will report your payments to the three credit bureaus. This helps your credit score because payment history makes up approximately 35% of your overall score. When you make your payments on time, your payment history will increase your FICO score. And, if your credit score is below average, refinancing into a new installment loan can raise it.
Common legal issues with installment loans
An installment loan is a form of loan that requires the borrower to pay the lender over a certain period of time in recurring installments. These payments are generally cyclical and include two or more monthly installments. In general, the loan amount, dates and interest rates are worked out in a written contract between the lender and borrower. Some common installment loan types include:
A written agreement may include a demand feature. This feature allows the lender to call off the loan prior to the original maturity date if the borrower fails to make one or more monthly installment payments. Usually, the lender can exercise this demand feature ten days after a missed payment. This demand feature enables the lender to recoup the outstanding balance and any associated fees. The lender is entitled to repossess the collateral.