If you have never taken out a student loan, financed a car, or mortgaged a house, then chances are that you may be unfamiliar with how installment loans work. These types of loans are also the most common since they can cater to almost any financial need.
As such, it is crucial that you are able to understand how they work, what to look for, and even what personal factors can end up influencing your rate before you borrow an online installment loan with instant approval from USInstallmentLoans.
So, let’s jump right in!
How do installment loans work?
Before you are able to successfully apply for an installment loan, you need to actually qualify for one, which usually means ensuring that you have a good credit score. One exception to this rule is if you are applying for a secured loan, which usually means putting up some form of collateral like a house or car to increase your chances of approval.
Alternatively, you can apply for an installment loan via an online lending service like USInstallmentLoans, which can help you find a lender that will approve your loan request even with a bad credit score.
According to Owen Wilcox, the co-founder of USInstallmentLoans, “Our aim is to provide borrowers of all credit types with a platform that can help them get the financial assistance they need, even when traditional lending institutions are not accessible to them.”
The added benefit of using such a service is that the process is usually fairly simple and straightforward, as all you need to get started is to fill out an online pre-approval form, which their partner lenders will review.
If approved, you will be presented with multiple installment loan offers to compare, and if you find one that is to your satisfaction, you simply e-sign the agreement, and you will receive your funds as soon as the next business day.
Once you receive the funds, you’ll need to start repaying part of the loan each month with interest. In most cases, the interest rate will be fixed, so you will pay the same amount for the entire life of the loan. And the benefit of this is that you will be able to create a budget that allows you to accommodate your loan repayments without much difficulty.
What to consider when applying for an installment loan?
When looking for an installment loan, one of the main things that you need to look at is the interest rate that you are being offered, which usually means checking to see whether the rate being offered is either fixed or variable.
Keep in mind that variable-rate loans can sometimes come with a lower initial rate that can potentially end up rising over time. This type of installment loan can help you save money, but it is only recommended if you can afford to pay back your loan quickly.
On the other hand, if you would prefer your repayment to be slow and carried out over time, you should lock in a fixed-rate loan. The next thing that you need to look at is what additional fees the lender will be charging you.
In most cases, you may be charged origination fees, while some lenders may even include late payment fees or prepayment fees in the loan agreement. In this regard, you should always take your time to carefully review the loan agreement and its fine print.
Finally, you will need to look at the length of the loan. The longer the term of the loan, the lower the monthly payments will be. However, you should also keep in mind that the longer the term, the more interest you’ll usually end up paying. However, if maintaining monthly cash flow is what you are most concerned with, then taking on a longer term could make sense
Tips on saving money on an installment loan
The first thing to keep in mind is that the loan interest rate that you will be offered will usually be based partly on your credit score. As such, being able to improve your credit score before you apply is a great way to save money on an installment loan.
In this respect, one of the most effective ways to boost your credit score is to lower your debt-to-income ratio by paying down as much debt on your current credit accounts. You should also check your credit report for any mistakes or errors that may be keeping your credit score low and report them to the relevant credit bureaus.
Finally, one of the easiest ways to save money on an installment loan is to simply pay it off as quickly as you can. Most installment loans come with fixed monthly payments, but some lenders may be willing to let you pay extra, which can shave off several months or years of interest from your loan.
How do installment loans affect your credit score?
While installment loans tend to appear straightforward, there are a few important factors that you should remain mindful of in regard to how they can affect your credit.
#1. Debt-To-Income (DTI) Ratio
Your DTI is essentially what most lenders will look at when determining whether you can afford a new loan or not. The higher your DTI is, the more likely it is that you’ll seem to be financially stretched too thin. This can often lead to being approved for a loan amount that is less than you desired, or it could result in being completely declined.
For instance, when applying for a mortgage, most lenders expect a DTI that is lower than 43%, so the lower you can get your ratio to be, the better. In this respect, you can easily calculate your DTI by taking your total minimum monthly payments for all your current loans and dividing them by your gross monthly income.
#2. Payment History
Your payment history will usually affect your credit score dramatically, as on-time payments can build up your score and late payments can significantly lower it. In this respect, it is essential that you make sure to take out an installment loan that you can afford to consistently repay over a set period of time.
If you are not confident that you can make a payment on time, you should take the time to reach out to your lender and discuss solutions. Some lenders may even be willing to provide you with a grace period or a modified payment plan in order to make sure that your credit score is not negatively impacted.
Is an installment loan suitable for you?
If you know exactly how much money you are going to need and would prefer to know exactly when your loan will be paid off, then an installment loan via USInstallmentLoans is the best choice for you. After all, they have predictable monthly payments, which means they are significantly easier to budget for.
However, the problem with these types of loans is that, unlike revolving lines of credit, they often lack flexibility because, once the funds are disbursed, you cannot borrow any more until you fully repay the original loan. This can be problematic if a financial emergency pops up, so always keep that in mind before taking on an installment loan.