In today’s world, millions of people use loans every single day. Loans allow borrowers to use the money for various activities from investing in buying a house. Whether you need a student loan or car loan, there are many different reasons you may need extra money for financial investment. Lenders loan money to borrows to allow them to have access to the cash they would not have had otherwise. One of these many types of loans is called an installment loan. Let’s go over what exactly these installment loans are, what they can do for you, and how to get one!
Other types of loans can be complicated and confusing, but an installment loan is very straightforward. Installment loans are a type of personal loan that is repaid in scheduled payments, with the payments being made weekly, monthly, or annually depending on the loan. For example, if you have an installment loan that is going to be repaid in 2 years, you may have monthly installment payments. Each installment is a certain portion or percentage of the principal of the loan, along with the interest on the loan as well. A traditional installment loan has many advantages when compared to other types of loans.
Oftentimes, an installment loan will have a fixed interest rate. This means that throughout the entirety of your installment loan, whether it be for 2 weeks or 10 years, the interest rate on your loan will remain the same. This way, you can know exactly how much your monthly payment will be, and there will not be any surprises in store. This can be a great advantage for borrowers, as they can know exactly how much their next loan payment will be and they can budget for that as needed. Payments can seem to blindside you every once in a while, so it is reassuring to know that there is stability, consistency, and predictability when it comes to your loan.
If you are someone that hates to have debt hanging over their head and likes to immediately pay off their loans and credit as soon as they can, installment loans may not be perfect for you. However, if you’re like most people, it may be challenging to come up with the money to pay off your loans quickly, and you’d rather have more time to pay them off over a long period of time. If this applies to you, a traditional installment loan can actually work in your favor, as you will oftentimes receive a lower interest rate than a different loan. Even if you do like to pay off your payments early, you can do so with many installment loans, although some lenders may penalize you for paying early (strange, right?).
There are really two main categories of installment loans that all installment loans fall under. An installment loan can be collateral or a non-collateral loan, also known as a secured or unsecured loan. A collateral or secured loan means that the borrower puts up some sort of property with value against the loan so that if your loan cannot be paid, the lender has the right to your property to make up for the lost money. Some lenders may require you to do this to get an installment loan, especially if you have poor credit. On the flip side, no property is required to be put up for a non-collateral or unsecured loan. These loans may be safer for the borrower, but the lender of these types of loans will usually charge a higher interest rate. If you were to default on this loan, your lender would have no right to your property, unless they took you to court and won a lawsuit.
All installment loans fall under these two categories. Let’s look at some of the most common types of installment loans so we can understand them some more.
Have you ever needed to buy a car? If so, chances are you took an auto loan out to pay for it. Few people have the cash to pay for a car upfront, so they take out debt in the form of an auto loan to help finance it.
Auto loans are almost always installment loans. These installment loans usually last 3-8 years on average but can be as short as 1 year as well. The payments for an auto installment loan will usually be made monthly, so you can expect a fixed monthly payment on your auto loan every month until it is paid off. If you were to get an 8-year installment loan, your interest rate will surely be lower than if it was a 3-year loan. However, in the end, you will be paying interest for a much longer time with the 8-year loan, so your total payment for your debt will be larger with an 8-year installment loan than with a 3 year one.
Going back to the concept of a secured loan or an unsecured loan, auto loans are almost always secured loans. Again, this means that you will have to put some sort of property up as a guarantee for your lender that they will not lose everything if you fail to pay. In terms of auto loans, the collateral that you put against your loan is almost always the car. Since the borrower directly uses the auto loan to buy the car, the lender will oftentimes make the borrower turn right around and put the car up for collateral. If the borrower fails to pay and defaults on the loan, the car goes right into the lender’s hands.
First, if you want to qualify for an auto loan you will need to be able to put a down payment on the car. For example, if you are taking out an installment loan for $15,000, you may have to put a down payment of around $1,500 or so. This way, you help pay some of the cost of the car as well as show your lender you at least have somewhat sufficient funds to pay off the debt.
To even get an auto loan in the first place, you will want to have a good credit score. If you have a good credit score, not only will you have more access to loans, but you will get more favorable terms on these loans as well. Lenders are willing to lend to borrowers they think they can trust. Getting an installment loan with a bad credit score is much harder. Since auto loans are much more expensive than a personal loan, if you have a bad credit score many more lenders will deny you an auto loan. If they choose to accept you though, you will oftentimes be charged a higher interest rate and end up paying more on your loan than if your score was better. Get that credit score up!
Put simply, a mortgage is debt you take out to be able to buy a loan. The vast majority of home buyers take out mortgages when buying a home, making them one of the most common, but expensive, installment loans. Think of your mortgage as paying rent for a house you own, but instead of having a landlord, you must pay your lender instead.
Mortgages work somewhat similar to auto loans. You take out a mortgage to pay for the house, and you pay installments on the mortgage with a fixed interest rate. Like auto loans, the house, condo, or apartment you are buying is used as collateral for the loan. If you fail to make your mortgage payments, your lender can “foreclose” on your property, or take possession of it and sell it to someone else. Because houses are so expensive and mortgages are for so much money, you will never see a mortgage that is an unsecured loan.
Mortgages and auto loans do have similarities, but they differ in some important aspects. You probably didn’t need me to tell you this, but because mortgages are much bigger, the loan terms are usually for much, much longer. A typical mortgage might last anywhere from 15 to 30 years. This means that your monthly installments or payments for your mortgage and auto loan could look the same, but you are making payments for many more years.
Compared to auto loans, there are fewer lenders that offer mortgages. Most institutions that offer mortgages are banks or credit unions. This can make shopping around for a mortgage much more difficult, and you may not find a huge difference between rates as you might if you are looking for an auto loan or a personal loan.
Compared to most other loans, mortgages require you to have the best credit. A lender is giving you large amounts of money to buy your house, so they will want to be as sure as they can that the borrower will be able to pay their debt off. This means that lenders will have much greater second thoughts when it comes to the borrower’s credit. Those with good credit scores and good credit history will be able to get most of the mortgages and will have much more leeway when it comes to getting a lower interest rate or a better term. However, mortgages can be offered to those with worse credit. These are called subprime mortgages and like auto loans, these have higher interest rates and less favorable terms.
In terms of volume, there are many more personal loans taken out than auto loans and mortgages. A personal loan is a loan for a small amount of money that is repaid in a relatively short period of time. Personal loans are often between 3-5 years. However, there are also personal loans that are under $500 and can even be as small as $50. These are typically referred to as payday loans. A typical borrower will use a personal loan can be used for anything from buying an expensive piece of furniture, medical expenses, or just to get groceries for the week. The huge variety of personal loans and their accessibility make them one of the best and most efficient loans.
The majority of personal loans will be unsecured loans. Borrowers are usually not required to put anything up as collateral, and if they fail to make a payment, a knock to their credit score is usually all that happens.
Compared to auto loans and mortgages, larger personal loans are usually repaid within 3-5 years of getting the loan, but much smaller personal loans are oftentimes repaid within 2 months. For small personal loans, this causes the interest rate to be much higher for this since the principle is small and the borrower is only making a few payments. Since these loans are for such a small amount, there are a vast number of lenders that are willing to give customers these loans, including those with poor credit. Because there are so many companies that offer these installment loans, make sure you find the one that’s best for you.
Like all loans, you’re going to have to provide some proof of income. This can be anything from a job, a monthly allowance, or dividends from your investments. If you do not have a source of cash, you are likely going to get denied a personal loan.
As mentioned earlier, personal loans are much more accessible to the general population that other loans are. This means that more companies offer loans to those with poor credit, like Possible. Despite your credit score, you can still have access to the cash you need. However, like other loans, a lower credit score means less favorable terms. You may be facing slightly higher interest rates and less forgiving loan teams than if you had better credit.
Here at Possible, we feel that we are the best option for small installment loans. We are not a traditional payday lender. Other payday lenders are known for their predatory practices on their customers, and we are looking to go against that narrative and provide a product that is both financially fair and provides value for our customers.
We offer both payday loans and installment loans that have competitive APRs compared to other payday lenders and other lending institutions. Likewise, if you need to push your payment back, you can extend your deadline up to 29 days within our app, something that most other lenders cannot offer. Additionally, if you pay back your installment loan successfully with us, we report your payment to the credit bureaus and your credit score will go up, something that also doesn’t happen at traditional payday lenders. Overall, if you need a small personal loan, we feel that we are the best lender around!
Looking for a personal installment loan? Download our app today and get started!