In a quest to solve financial issues, seeking to borrow is a common choice. Borrowing on credit is not a new practice and it has evolved through the years. If you are seeking a loan, then you would have probably done your research on what suits you most. Now, you can access both traditional institutions and online installment loans. Choosing an installment loan will help to facilitate your budgeting. Especially as you are only required to pay a fixed sum till the loan is fully repaid.
Whether you are applying for a loan from a brick and mortar store or you are getting an online installment loan, you are more positioned to make the best decision with the right information. So, here are the basics of the various installment loans worth knowing, more about online installment loans with bad credit.
How Installment loans work
Installment loans work on schedules to enable borrowers to repay loans over a specific timeframe. The repayments are in bits or installments that are easily affordable. Typically, the process does not involve collateral collection and repayment is monthly. Whenever a part is repaid, both the interest and the principal amount of the loan reduces. The various types of installment loans include student loans, auto loans, personal loans, and mortgages. Here is exactly how installment loans process takes place:
- First, a borrower applies for an online installment loan by filling out a form on the lender’s website. Or, the borrower fills the application at the storefront of the lender. The application form requires the personal detail of the borrower such as name, address and phone number, etc.
- The lender walks the borrower through the various loan options available. Different factors determine the loan options. They include the loan purpose, terms of the loan, down payment, payment amount and schedule. The online application gives the borrower access to different lenders.
- Most lenders make use of soft credit checks in determining the borrower’s creditworthiness even though credit check loans aren’t offered. The borrower’s credit score greatly affects the loan term.
- On approval of the application, the borrower signs the loan agreement. Next, the amount of the loan gets sanctioned and the borrower gets credited.
- There are other payments in addition to the interest rate paid by the borrower. Such as loan origination fees and application processing fees. By paying the rates with regularity, the borrower retires the loan. In addition, the borrower might decide to pay off the loan before the loan term expires- to save interests. Some lenders sometimes impose penalties on loan defaults.
Installment Loan Concepts to Know
Interest Rate on loans
Installment loans are available at lower interest rates when compared to other credit facilities and loans. Also, through the loan term, you can rest assured that the interest rate will remain fixed. This is regardless of the market change.
Stable Income Proof
Applying for an installment loan requires submitting proof of stable income. Most lenders use such documents to check the credit history of applicants. Submitting these documents to lenders demonstrate the ability to repay the loan as the contract stipulates. Bank statements, tax documents, benefits letter or pay stubs are suitable proofs to reveal earnings.
Monthly Payment Enumeration
The beauty of installment loans is that you can secure a loan even though your credit score is poor. Although, at an even higher interest rate. Your credit score determines the rate of interest your loan will accrue. This means that you must pay attention to your credit score and fix issues related to it. Having better credit and FICO scores, the loan term and amount borrowed determines the loan cost.
Repayment delay
Secured installment loans are often obtained by making use of personal possessions or deposit certificates etc. Supposedly a situation arises where a borrower defaults a loan repayment, forfeiture of the asset used in securing the loan is likely possible. Your credit profile reflects a fully repaid installment loan from the last date of activity leading up to 10 years. And a late repayment history may take up to 7 years on your credit history.
Summary
Installment loans are quite easy to obtain and borrowers can apply for more credit facilities than they need. To avoid plunging in unnecessary debt, you must resist taking more than is affordable. Provided you make a good research about the lender, you can reap the full benefit of using this financial mechanism. Whether it is an online installment loan or from a storefront.
