What Is An Installment Loan?
An installment loan allows you to repay your debt through a fixed monthly payment over the course of a fixed term. You’ll receive the funds at one time in a lump sum, and you’ll be required to repay the loan with a regular payment schedule.
Let's take a closer look at the details of installment loans together.
What Is Installment Credit?
When you’re looking to borrow funds, revolving credit and installment credit are the two available options. Installment credit is like a personal loan: you’ll repay your loan over a defined period of time in predetermined amounts. You’ll be able to easily factor this steady monthly payment into your budget.
With revolving credit, such as a credit card, you can expect to have payments of various sizes based on how you use it. It can feel more difficult to manage revolving credit responsibly.
What Are Some Examples Of Installment Loans?
A few examples of installment loans include personal loans, mortgages and auto loans. Although there is a wide range of different installment loan opportunities, the principle is the same. You’ll be able to fund a major purchase upfront and then pay off your debt in determined, fixed payments.
Installment loans differ from revolving credit in many ways. With revolving credit options, you might consider a credit card or line of credit. The payments each month could vary based on how you choose to manage that debt.
How Do Installment Loans Work?
When you seek out an installment loan, you apply for a set amount of money. You’ll then repay that loan principal, along with interest, on a monthly basis. By the end of the loan term, you’re expected to repay the total amount of the loan, plus interest.
Sometimes an installment loan will require some type of collateral. For example, if you’re using an installment loan to buy a home, then the home will serve as collateral for the lender. With collateral, a lender to reducing the risk of lending you money because the value of your collateral will act as a recourse if you can’t make your payments. With a mortgage, the lender could take possession of the home if things go south.
In other cases, you won’t have to worry about putting up collateral to secure your installment loan. For example, many types of personal loans don’t require collateral. Without the requirement for collateral, the lender is taking on more risk since they will not have a way to recoup their losses if you stop making your payments. The lack of collateral makes the unsecured personal loans riskier for the lender, so you should expect generally higher interest rates on personal loans.
You’ll need to pay attention to the monthly loan payment timeline. Although an installment loan can allow you to make a major purchase right away, you should consider the impact on your monthly budget before signing on the dotted line.
When Should You Consider An Installment Loan?
If You Need To Fund A Major Purchase
An installment loan can be a great option when planning something big. Although some installment loans such as auto loans or home loans have rules for how you can spend the money, that’s not the case for all types of installment loans. For example, many personal loans offer the opportunity to use the funds for a variety of uses such as funding a wedding or consolidating other debt.
When You Need A Lump Sum Of Cash Upfront
If you need a certain amount of money right away, a personal loan can be a good option, depending on your ability to repay it. A few good uses for a personal loan include debt consolidation, paying for a major unexpected expense, or taking care of an emergency situation.
How To Get An Installment Loan
To get an installment loan, the first step is determining which type is right for your situation. If you’re looking to fund a certain purchase such as a home or car, then you should check out those specific options. If you’re looking for more flexibility, then a personal loan might be the better choice for you.
Once you’ve decided which type of loan is best for you, it’s time to shop around. You should secure quotes from multiple lenders to find the best terms available. It’s important to pay closer attention to the interest rates attached to the loan to ensure that you aren’t overpaying.
As you get quotes from lenders, you should be able to narrow your search due to individual lender requirements. Many will require an active checking account and a minimum income. Plus, most will have a particular credit score in mind.
Where Can I Get An Installment Loan?
If you’re looking for a personal loan, we can offer a quick application to get money in your pocket. You’ll be able to see your preapproved offers within seconds from the comfort of your couch and even enjoy same-day funding options.* Plus, you’ll be able to prepay your loan without running into any hidden fees.
Will I Undergo A Check Credit?
Yes! Although each lender will have different requirements for their loans, you should expect that there will be some type of credit check. Typically, your lender will perform a hard credit check to verify your creditworthiness before finalizing the loan.
Of course, you should keep in mind that a higher credit score will usually lead to a lower interest rate. If you’re able to secure an installment loan with a lower credit score, then you should expect a higher interest rate or less-than-favorable loan terms.
Here is some more good news for borrowers who take out an installment loan. If you make on-time payments consistently to repay your installment loan, it can raise your credit score over time. That’s because lenders like to see that you can and will make on-time payments.
Is A Personal Loan Right For You?
You can use a personal loan, a type of installment loan, for a variety of purposes. If you have a good credit score, then a personal loan through an online lender like Rocket Loans® could be the perfect fit. If you have a lower credit score, you should weigh the price of the interest against your current needs. If possible, find a way to fund your problem without resorting to high-interest debt.
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Can You Refinance A Personal Loan?
Is it possible to refinance a personal loan? In short, yes, but there's so much more to it! Read about when refinancing may become the best option for you.
What Credit Score Do You Need For A Personal Loan?
Wondering what credit score you need for a personal loan? Read our article for a background on good credit and the effects of credit on personal loan approval.