What Is an Installment Loan?
An installment loan is a form of financing that provides you with the money you need to pay a debt – usually, one that cannot wait. The loan is usually paid weekly or monthly.
Installment Loans May Be Secured or Unsecured
You can get an installment loan that is secured or unsecured. A secured loan, also called a collateralized loan, is attached to a piece of collateral, such as a car title, vehicle, or house. This type of financing comes with a lower APR (annual percentage rate), as the lender assumes less risk. They can seize the collateral if the borrower defaults on the loan.
An installment loan online that is unsecured features a higher rate of interest. The lender’s risk increases because an asset of collateral is not attached to the funding. Most cash installment loans online are unsecured and only require that you have a source of income, are at least 18 years old, and have a checking account to deposit the funds electronically. Installment Loans represent the most common type of financing in Canada.
An online installment loan is different than a credit card or line of credit, as the terms and conditions for the loan state a fixed end date. Therefore, you know when the loan will be repaid from the start.
How Instalment Payments Affect Your Credit Score
Besides making regular monthly payments, you can also build up your credit score with an installment loan by having a healthy credit mix. Making payments is part of your credit history, and this activity is reported to the 2 credit bureaus in Canada.
If you use credit cards, adding an online installment loan shows you are a smart borrower, as short-term installment loans typically feature lower interest rates. Because installment loans provide a plan for flexible repayment, you can pay off your loan, on average, from 12 months to 60 months overall. Again, stick to the payment schedule to elevate your credit rating.
How installment loans Can Support Your Budgetary Practices
When you take out an installment loan, you have the opportunity to improve your methods of budgeting. You can also create monetary goals. Use one of the financial tracking apps online, such as Mint to help you with spending and saving. You can eliminate impulse credit card purchases by using a cash-only budget method such as the envelope system.
If you take out a cash installment loan to consolidate credit card debt, the whole process becomes even easier and your interest rates drop as well. In addition, you only have to worry about one payment each month instead of several credit card bills.
The 50/20/30 Rule
By taking out an installment loan and becoming a conscientious budgeter, you can also follow the 50/20/30 rule. This rule directs you to allocate 50% of your income to necessities, 20% toward our financial objectives, and 30% for leisure pursuits. Also, set up automatic electronic transfers so you can deposit part of your income in a savings account each month.
Types of Installment Loans
- A mortgage is set up so a borrower can purchase real estate. The term spans 15 to 30 years and features a fixed or adjustable interest rate.
- An auto loan allows you to buy a car. The installment payment has an interest rate of 3% to 15%. The interest charged depends on your credit score and credit history—the higher your crediting rating, the lower the APR.
- Personal loans represent the most common type of installment loans online in Canada. This installment loan can be used for any kind of expense and is frequently used to consolidate debt. As noted, when a personal loan is secured, it is backed by collateral. If the loan is unsecured, the lender bases their approval on the borrower’s credit score.
- Traditional bank loans or credit union loans require the borrower to have good credit and the rates, as a result, are much lower.
- Online Installment loan products are the best option for borrowers whose credit is not great and financing is urgent. This form of financing allows you to shop for lenders and compare rates in the comfort of your home.
The Advantages of Installment Loans
You will find taking out cash installment loans offers several benefits, such as the following:
A credit card can be challenging to manage, as the amount on the statement can change, depending on what you spend. With cash installment loans, you can pay your financing and know what you will spend each month. This provides a better budgeting experience – one where you don’t normally have to worry about a payment or rate increase. Unless you have a variable rate mortgage, installment loans, such as personal loans, are easier to manage.
Adaptable payment schedules
When you have a customized repayment plan, you have the freedom and adaptability to make the payment when you wish. By taking out a cash money installment loan, you can choose a longer-term and save on the payments or agree to a shorter-term and save on the interest expense.
Fast access to emergency funds
If a crisis hits, you can get the funding you need within 24 hours. You can also opt for installment loans with no credit check. These loans are usually payday loans or cash advances that you pay back quickly. You only need to show you are employed and supply a recent pay stub. Funding usually is open to people 18 years old or older.
Opportunity to build credit
When you take out an installment loan online, your credit score may not be high enough to get funding at a bank. However, applying for the funding permits you to build your credit so you can get a lower interest rate loan in the future. The biggest thing to remember is to make your payments on time. It often helps to set up automatic withdrawals. In some instances, you can get a discount when you choose this method.
Installment Loans Lenders
You can get an installment loan with either no credit check or a loan designed for people with bad credit. However, it is best to avoid this route if you can help it. In many cases, lenders who promise guaranteed approval for bad credit or no credit installment loan are predatory. They do not have the borrower’s better interests in mind. If you get accepted for one of these loans, your payments will not be reported to credit reporting agencies.
When applying for direct lender installment loans that cover bad credit borrowers, you need to watch out for predatory schemes, such as steep fees, hidden charges, and exorbitant interest rates. Only work with lenders who have good online reviews and reputable standing in the financial industry.
If you can help it, it is also a good idea to veer clear of short term installment loans such as installment payday loans. This type of financing can throw you into a debt cycle if you are not careful. You may end up taking out a loan and paying it back only to take out another loan to stay financially afloat. Instead, only use a payday loan when you have a financial emergency that cannot be resolved by any other means.
Frequently asked questions
Can I get installment loans with bad credit?
You can receive approval for an installment loan even when you have poor credit. However, you need to make sure you use an accredited and trusted lender.
What fast does the process go for approving an installment loan?
You can get the funds the same day, provided you have the required information and documents and you submit your application early. Otherwise, you will need to wait 24 hours.
What do I need to apply for an online installment loan?
To receive the proceeds for an online instalment loan, you should provide the following:
- Name and address
- Name and address of employer
- Email address
- Checking account routing number and account number for electronic funds transfer
- Recent income statement or 2 most recent pay stubs
- Identification, such as a driver’s license, passport, or S.I.N. card
- The reason you are taking out the loan – student loan, debt consolidation, emergency cash (for home repair or car repair), money for wedding, to buy a vehicle, refinance a mortgage, or apply for a mortgage.
What makes installment loan lenders different than banks?
If you take out loans online with monthly payments, you don’t have to worry about having a perfect credit score. You can also receive the funding fast – the same day or in 24 hours. You may have to wait a while to get funded if you go through a credit union or bank. Online installment loans come with fixed rates and flexible schedules for repayment.
Where should you check the reviews for installment loan lenders in Canada?
Check out reviews through review sites, such as Feefo and Trustpilot.
What should you seek when choosing a direct lender of installment loans?
The lender you choose should have great customer reviews and provide fast approval. They should have loans that accommodate your specific lending needs. For example, if you need to consolidate debt, look for a lender that offers this option. Maybe you need to buy a car. Narrow your choices by choosing lenders that offer the financing. Select the lender that has the lowest loan rates even if you have a poor credit score.
What should I check before signing a contract for an installment loan?
Make sure everything is clear to you about the agreement. Don’t go with a lender that charges a prepayment penalty or includes hidden fees in the installment loan contract.
Can I get an installment loan if I have filed bankruptcy?
Yes, you can get a no credit check installment loan if you have filed bankruptcy. Just make sure the lender you select has a good reputation in the financial industry and good customer reviews.
Installment loans can be used for a wide variety of reasons. Whether you want to improve your credit rating and pay down your debt or need to get your car repaired in a hurry, you can count on direct lender installment loans to cover you financially.