Need cash for an emergency? Want to consolidate your debt? Need to fund a wedding or buy a car or even a house? Well then—you could consider getting an installment loan. Installment loans are one of the most popular loan products out there, and even if you’re new to the term, you’re probably familiar with how they work. So, what are installment loans? Let’s break it down and find out.
What Is an Installment Loan?
An installment loan is a loan product in which you take out a lump sum, then repay it in regular monthly payments called “installments.”
Installment loans are meant to be a quick way for you to get cash. Because you can typically borrow more money from an installment loan than a credit card, they can help you with big purchases, such as houses, cars, and even medical bills.
Unlike revolving credit, which allows you to continue borrowing money after you pay back your lender, installment loans are one-time loans. If you need more money after you’ve paid it off, you’ll have to take out another one.
How Do Installment Loans Work?
When you take out an installment loan, your lender will assign you an interest rate, which, except for some mortgages, is usually fixed, meaning it won’t change over time. Every month you’ll make regular payments with a portion going toward the amount you borrowed and another portion going toward the interest on the loan.
What Are Some Examples of Installment Loans?
Installment loans are a diverse bunch with some having low-interest rates and others high. Here are the most common types.
Yes, mortgages are installment loans. You borrow money to buy a house, then you pay back what you borrowed plus interest. Since your mortgage is anchored to your house (also called “collateralized”) the interest rate on these loans tends to be lower.
Another common installment loan is the car loan. Again, because your loan is attached to your car, you’ll typically have a lower interest rate.
3. Personal Loans
A personal loan helps you consolidate debt or pay for an unexpected purchase. Because it’s not attached to collateral, this type of loan usually has higher interest rates though, like the other types, you’ll make regular monthly payments to pay down the amount you borrowed.
4. Payday Loans
Payday loans are an installment loan that’s supposed to help you “get by” until your next paycheck. These loans usually have shorter terms and higher interest rates, and if you can’t make regular payments, you’ll get hit with late fees.
Lastly, student loans also follow the installment model. You borrow money from the government or a private lender, then pay the money back in fixed regular payments.
What Are the Advantages of Installment Loans?
As long as you’re financially secure to pay them back, installment loans can really help you out. Here’s how.
1. Fast money
When an emergency happens, you don’t have to worry about waiting: with some lenders, you can get an installment loan as soon as the day you apply.
2. Higher loan amounts
You’ll usually get more money with an installment loan than with a credit card, helping you afford bigger purchases.
3. Longer terms
Except for payday loans, which you’re expected to pay off in a narrow timeframe, installment loans have longer terms, giving you plenty of time to pay them off.
4. Fixed payment amounts
You won’t have to worry about your payments changing. Installment loan payments are the same amount each time, making it easier for you to budget.
5. Credit score boost
Lastly, if you make payments on time, installment loans can help you build your credit score. Remember—a portion of your credit score is based on how diverse your credit is (credit cards, loans, etc). When credit bureaus see you have more than one type of credit—and you pay them back on time—they’ll normally reward you with a higher score.
Can You Get an Installment Loan with Bad Credit?
Bad credit can make borrowing money difficult, and you’ll probably face more rejections than approvals. But here’s the good news—it’s not impossible to get an installment loan if you have bad credit.
If you struggle to borrow money due to a low credit score, we want to help. Jora Credit can work with you to get an installment loan that’s right for your life and budget. If you have an emergency, or you need cash fast, feel free to apply now (add application link).
Talk to a lender and find out what type of loan you qualify for today. If you need a convenient cash loan, visit our website today to find out more about how Jora works.