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What Is Installment Credit?

  • by Joseph Priebe|
  • 0 Comment |
  • Updated: January 25, 2022 |
  • Loans

What is installment credit?

Loans have helped many borrowers fulfill their dream of buying a house or a car. Still, some people resist taking a loan with the mere thought of being crippled with debt repayments. However, that is no longer the case with installment credit.

When buying big-ticket items, it's easier to pay for them in monthly installments than paying all at once. Installment loans allow you to borrow money when you cannot afford something.

If you have been thinking about getting an installment credit, here are some questions to think about before taking the plunge.

What is Installment Credit?

Installment credit, also known as installment loans, is a closed-end loan option that allows you to borrow funds for a specific amount and repay in installment payments over a set period. The amount of your loan and each monthly payment is usually predetermined, along with the number of monthly payments you would likely pay over the agreed loan term. In most cases, you get to decide your loan term from a few months to years, helping you to set your monthly payments according to your budget.

Due to their features and functionality, installment credit loans are ideal for financing significant expenses like buying a car, a home, or any major appliance. That doesn't mean you can't use installment loans for small cash needs. The following examples of installment credit will show you the versatility of this popular form of credit.

What are Examples of Installment Credit?

Installment loans can be either in a secured form or unsecured form. While secured loans are those loans that require collateral, unsecured loans need no collateral at all. Every type or example of installment loan falls under either of the two forms. In addition, each type of installment credit is differentiated based on the purpose for which you may need a loan. Here are the common examples of installment loans, along with a short description of each that will help you understand them better:

Installment Credit
 
  • Auto Loans
  • Mortgages
  • Student Loans
  • Personal Loans
An auto loan is a secured installment loan type with your car as collateral. With longer terms and lower monthly payments, these loans can help you pay for a new or used vehicle. You can borrow money to buy a house with a mortgage loan. The loan is secured against the value of your home, and their repayment term is usually longer than 15-20 years. These are unsecured loans to help cover your education costs. Unlike other installment loans, a student loan comes with a grace period between when you graduate and start paying your monthly payments. These loans can be used for pretty much any purpose you want. Personal loans are generally unsecured, which means they don't require collateral and have terms between 12 and 96 months.

 

What Factors Determine Your Installment Credit Loan Eligibility?

 

If you're considering getting an installment credit, you would undoubtedly want to know how to qualify for this loan. Here are a few common factors that most installment loan lenders assess to determine your eligibility:

Your age: A government-issued document will be needed to prove you meet the minimum age requirement.

Ability to repay: Proof of a steady source of monthly income is required to show that you'll be able to make payments on time.

State of residence: You need to present proof of your residence as the laws regulating installment loans vary from state to state.

Credit score: Generally, a soft inquiry is performed that doesn't adversely affect your credit score to check your payment history.

What are the Advantages and Disadvantages of Installment Credit?

If you're considering an installment loan to help your finances, you may want to weigh its advantages and disadvantages. We unfold the pros and cons of installment credit to guide you in making the right decision:

Pros of Installment Credit

  • The most significant advantage of installment credit is that you know what your monthly payment amount will be. This can, in turn, help you plan your budget accordingly to avoid missing even a single payment.
  • An installment credit makes it easy to cover significant expenses, finance your big purchases, and pay later in multiple installments. These payments are usually affordable and manageable without burdening your budget.
  • By getting an installment loan and making regular payments, there is a possibility to build or rebuild your credit scores. You can check with your lender to ensure that your on-time payments are being reported to the credit bureaus.

Cons of Installment Credit

  • Unlike revolving credit, an installment credit only allows you to borrow a set amount from your loan eligibility amount. You will have to apply and fulfill the requirements for another loan if you need additional funds.
  • In the case of long repayment terms, you might feel a fierce financial commitment to make regular payments for an extended period. If you think you can pay off your loan early, you can check whether your lender charges any prepayment penalties or not.

We never want you to look at the advantages of a loan without fully considering the potential disadvantages when you consider borrowing money. Though there are a few drawbacks of installment credit loans, there are some pretty clear benefits, which is why they are considered safer options for borrowers.

How Are Installment Credit and Revolving Credit Different?

No two types of credit are precisely alike. And when you are planning to borrow money, having a clear understanding of different credit options is crucial. For

Installment Credit Revolving Credit
A lump sum loan amount is provided on approval which has to be paid back with interest in scheduled monthly payments until the loan is paid off. A credit limit is provided on approval, and the borrower can keep withdrawing any amount at any time within the established credit limit.
The interest rate of installment loans could be fixed or variable. However, they come with lower interest rates than revolving credit in most cases. The interest rates of revolving credit such as credit cards are higher than installment loans.
Although the maximum loan amount of installment loans depends on various factors, it can be a suitable funding option for large ticket purchases. A revolving credit might be best for someone who needs to borrow a relatively small amount of money to fund smaller debts or expenses.

 

Can Installment Credit Loan Help Improve Your Credit Score?

 

If we consider the payment history element of the credit score calculation, an installment loan could positively affect your scores if you make all the payments on time. However, these effects are indirect and may not be seen immediately.

In the same way, if you fail to pay the scheduled payments or miss any of your installment credit payments, you can expect to see a drop in your credit score. Since many installment credit lenders consider your needs while deciding your repayment plan, you can choose a plan that you can stick to and works in your favor.

Thinking About Applying for an Installment Loan?

You can get an installment credit to overcome various financial hurdles. From buying your dream house to paying unexpected bills, CASH 1 offers you different installment loan options based on your loan requirement. You can qualify for a comparatively more considerable loan with secured installment loans. On the other hand, unsecured installment credit types are more suitable for small cash needs. You can contact a loan officer to know more about our loans or apply online for installment loans to get your funds in the blink of an eye.

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