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What Is Installment Credit?

  • 5 MIN READ|
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  • by Joseph Priebe|
  • July 21, 2017 |
  • Loans

What is installment credit?

When it comes to borrowing money, there are a lot of options that you must choose from. If you need to make a large purchase, but you do not have the funds to buy the big-ticket item, you may be considering an installment loan. Installment loans are used among businesses and individuals to pay for goods and services. After reading this article, you will know what an installment loan is, how installment loans work, and if one is right for you.

Definition and Example of Installment Loans

Installment loans, are a type of loan that has a set amount you can borrow and payment period in which you can pay back the principal (original loan amount) and interest. Payments are usually in monthly installments based on the loan period that you choose. Installment loans typically have longer repayment periods than other personal loans, like cash advances. Before signing an installment loan agreement, you know how much your monthly payment will be, and the amount of time you will be repaying the loan.

A few typical examples of installment loans are mortgages, car loans, student loans and private personal loans. Some peer to peer loans are also considered installment loans. Peer to peer loans are loans that you receive from an individual rather than a lending company.

Installment loans can be either secured or unsecured, and short-term or long-term. Short-term installment loans offer a higher credit limit and longer repayment terms than other short-term loans, such as a cash advance. Depending on your needs, you can choose to get an installment loan with a shorter loan term in which you make larger payments monthly or decide on a longer loan term to make smaller monthly payments.

Please note that in some states, laws dictate the minimum and maximum amounts of money that a person can borrow from an installment loan. Furthermore, some states also regulate the loan term length.

How an Installment Loan Works

An installment loan is paid back with scheduled monthly installments, usually in a fixed number of monthly payments that are of equal amount. Each monthly payment paid by the borrower includes a combination of principal and interest.

For example, let us assume you take out an installment loan for $2,000 at an interest rate of 5% to be paid back over the course of 12 months. Since an installment loan is paid back in monthly installments that are of an equal amount, you will be making the payments in 12 monthly installments.

$2,000 = Principal, i.e., original loan amount

($2,000 x 5%) = $100 (interest)

Total (principal + interests) = ($2,000 + $1,00) = $2,100

Total installments = 12

Monthly installment to be paid = $2,100/12 months = $175

As you can see from the above calculations, you would make 12 monthly payments of $175 each to pay back the installment loan.

How to Get Installment Credit

Qualifying for installment credit requires you to:

  •  be at least 18 years of age
  •  have a bank account
  •  have a steady source of income
  •  Approval from the lender of your credit score

Different types of installment loans (e.g., mortgages, car loans, student loans, etc.) have different credit and revenue requirements.

Your credit score and income determine the loan amount you can borrow and the interest rates. The better your credit record and monthly income, the better chances you have at getting approved for an installment loan with a low interest rate. Having said that, you may still get approved for installment cash credit if your credit score is not good, but you might have to pay a higher interest rate.

When applying for the loan, there is an application process that requires you to request a loan amount and provide information to the lender so they can check your credit and income. After the lender has the paperwork, they will use the information that you provided to determine how much they will give you and at what rate. Typically, once they have this info, they will go over the options for you to pay back the loan.

They will give you repayment time frames, usually, 12, 24, 48, and 52 months and you determine what you can afford monthly. If the lender offers you a 52-month repayment of, let's say, $50, but you can afford a larger payment, you may want to consider a shorter repayment period to ensure you aren't paying off this debt for a long time.

Having a loan ties up a portion of your monthly income and it is considered when you go to make other purchases using a leader, like a home or a car. The loan amount and interest rates decisions ultimately fall on the lender, even if you request a specific amount, they may deny you for that amount but offer a lower figure that they feel fair based on your income and credit.

Where to Get an Installment Loan

When considering an installment loan, it is important to find an established lender that will help you choose the right loan amount with an interest rate to fit your financial needs and your credit history. The easiest way to get an installment loan is through your local bank or credit union. But, you might want to shop around to get the best deal.

Depending on your needs, you can get an installment loan from a bank, credit union, online lender, or a short term loans for bad credit lender. You might also choose to apply through a mortgage broker, car dealership, and other places, depending on the use for the loan.

If you have a good credit score, your local bank may give you a low interest rate or flexible repayment terms. Your local credit union may also consider your application if you cannot get an installment loan from the biggest banks, but many times you need to be a member of a credit union before they loan to you. Applying for an installment loan with one of the reputable online lenders is convenient and quicker than other options.

You may find that the APRs are a bit higher online, especially if your credit is not great. A company like CASH 1 offers installment credit loans with flexible terms, even if your credit is not great. They even have physical locations as well as a website where you can apply online. Once you have the approval from the lender, make sure to read the fine print before signing the loan agreement, you will want to know if there is any hidden costs or conditions.

Are Installment Loans Right for Me?

Installment loans are an excellent way to get the funds you need fast, to pay for goods and services. But an installment loan many times will come with high-interest rates and they put you in debt. If you are not capable of managing your finances and handling payments monthly on time on a long-term basis, they may not be a good option for you.

Installment loans might be better for you in the long run if you already do not have a lot of debt, and you have the finances to make payments on time each month over time. Also, keep in mind, that a regular, on-time payment on an installment loan shows creditors and credit rating agencies that you are a responsible lender and that you can be trusted to lend to. It indicates that you can manage your finances and that you have the money to handle payments.

Before applying for an installment loan in Reno, NV do your homework online or in person at your local bank or credit union to find a reputable lender. An installment loan gives you the much-needed cash to pay for houses, cars, college tuition, or even a service and if you are responsible and make timely payments and fulfill your obligations, they can help your credit score.

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