What Are Installment Loans?
By definition, an installment loan is simply this: a loan where you borrow a set amount of money—usually distributed all at once—and pay it back over a mutually-agreed-upon amount of time. Installment loans are commonplace across multiple industries from banking to education. However, they usually go by other names such as personal loans, student loans, and mortgages.
One of the most important topics that come up when applying for any loan is credit. Fortunately, installment loans are available to applicants with varying degrees of credit. Whether your credit is excellent or poor, there’s still a good chance a lender may approve your application.
Types of Installment Loans
Installment loans are best defined into smaller categories: collateralized or non-collateralized. Another term for collateralized and non-collateralized is secured and unsecured. These terms mean the same thing, and they revolve around this concept: do you need to put an asset or property up behind your name on that dotted line?
Collateralized or Secured Loans
Some of the most common collateralized loans are auto loans and mortgages. For example, an auto loan provides a borrower with a car on the agreement that the borrower will pay back the balance over a set time (plus interest and other fees). The car is used as collateral, and if the borrower defaults, the car will be taken away.
A mortgage is similar in that a homeowner is approved by a lender to occupy a house with the agreement that they stay current on their mortgage payments. If they do not stay current with their loan payments, then the bank will seize the house. In both scenarios, the repayment of the loan’s principal is backed by collateral.
Non-collateralized or Unsecured Loans
In contrast, a non-collateralized or unsecured loan is extended to the borrower without collateral (i.e., a car or a house). The most common form of an unsecured loan is a personal loan. These loans can be used for a variety of circumstances including medical bills or consolidating debt.
A personal loan usually has a higher interest rate as the lender is taking a more significant risk. In addition, the lender usually makes their loan decision based on creditworthiness when extending a non-collateralized loan, which can be a mix of factors including credit score, borrower’s income, and net worth.
How to Apply for an Installment Loan
After reading this, if you feel like an installment loan fits what you’re looking for, you may want to start by assessing where you stand with lenders. To do this, try using a loan calculator and providing some basic financial information. The results will help you get a ballpark idea of how you look to the lenders on the other side of the table.
Next, do your research. Searching for a loan provider is an important step that requires time and focus. Remember, you are going to have a business relationship with the lender of your choice. You’ll want to make sure their customer service, rates, and loan options are right for you. Check out the Better Business Bureau, customer review sites like Google and Yelp, and maybe even reach out to friends and family for some recommendations.
Some lenders, like Simple Fast Loans, allow you to see preliminary rates. This is valuable information and should be compared apples-to-apples on important numbers like interest rate and monthly payments. Keep in mind, these numbers are often an estimate and not set in stone.
Online Installment Loans
Now that you have your ducks in a row, it is time to apply. For many people, applying online will be the easiest way. To apply for an installment loan online, you will need a stable internet connection and the same personal documents mentioned above. Using a quick and simple online form, companies will assess your eligibility, and, if eligible, present you with a decision and maybe even a loan offer.
Installment Loans Near Me
Now, if this process seems too impersonal, you can always apply for your installment loan in-store. Most companies will have a store or branch locator so you can find the nearest location in your area. If you do decide to drive to the location nearest you, don’t forget to bring all of your supporting documentation.
Although different lenders will have different set of requirements, direct installment loan lenders usually require the following documents:
- Government-issued ID
- Social-security number
- Proof of income
- Bank account (optional)
Advantages vs Disadvantages of Installments Loans
Installment loans are extremely versatile loans, and this is one of their key selling points. Borrowers can match their needs (i.e, amount, length of time) for their specific financial purpose. A fixed monthly payment is also another advantage. Lastly, and maybe most importantly, installment loans can improve credit scores. A successfully paid back loan demonstrates to lenders that you are responsible and can successfully manage your finances.
Disadvantages of installment loans are generally centered around fees and interest rates. In the case of a non-collateralized loan or an unsecured loan, you might see potentially higher interest rates because there is no asset backing you up. Moreover, origination fees and prepayment fees can also be accessed. So, make sure you read the fine print, understand your state laws, and ask questions about anything you cannot square.
In conclusion, installment loans are a very common and flexible loan for most borrowers. We recommend doing your research and comparing prices before you sign on that dotted line.
“State Laws Put Installment Loan Borrowers at Risk”, The Pew Charitable Trusts, 2018, https://www.pewtrusts.org/en/research-and-analysis/reports/2018/10/17/state-laws-put-installment-loan-borrowers-at-risk