An installment loan is a type of loan you can obtain in one lump sum and repay in equal monthly payments, called installments. The repayment period typically takes 2 to 24 months, but in several cases, such as mortgages, it can reach up to 30 years.
How Does an Installment Loan Work?
If approved, lenders directly deposit the funds into your bank account within 24 hours. After managing your expenses, you need to return the funds in a set term with interest rates. The interest for installment loans varies from 16% to 100%, depending on the lender. It is still lower than for payday loans (up to 400% APR) but higher than for personal loans (2,49%).
When applying for an installment loan, ensure you can pay your installments on time, as missed payments can result in late fees.
What Are the Types of Installment Loans?
There are many types of installment loans, allowing everyone to find the right option for their purposes. The following loans have an installment structure:
Personal Loans. Personal loans are the widest category of installment loans that you can use for various purposes: from car repairs to covering vacation costs.
Mortgages. A mortgage is a secured loan allowing you to purchase a property. However, the house you buy serves as collateral. It means that if you fail to repay the debt, the lender can seize your property.
Auto Loans. Another type of secured installment loan is a car loan, which works similarly to a mortgage. It helps you buy a vehicle, and the loan provider can keep the auto you purchase if you don’t repay the money.
Federal Student Loans. Student loans are unsecured loans borrowed to cover study expenses. These costs include accommodation, tuition, books, and other expenses.
“Buy Now, Pay Later.” BNPL loans allow borrowers to buy and pay for the necessary item in small monthly payments. However, it is important to be careful, as these loans can lead to impulsive purchases.
How to Get an Installment Loan with Bad Credit?
Although many lenders require a good or excellent credit score to approve the borrower’s loan request, there are still options for those with bad or poor credit. Installment loans with bad credit generally have higher interest rates, making their repayment more complicated. Therefore, ensure you can repay the debt before applying to avoid paying late fees and hurting your credit score.
If paying high-interest rates does not suit you, you can avoid it by finding a co-signer or applying for a loan with collateral.