Is there some project you want to start but don’t have the money for it? Do you want to get a big-ticket item but don’t have the cash?
Installment loans can help you make those things happen. Whether you’re buying a home or reconsolidating credit card debt, you can use installment loans to finance those projects and pay them off in monthly installments.
More people are turning to installment loans such as personal loans to do things that they don’t have the cash on hand to do.
Do you want to know more about installment loans and how you can use them to make your money grow? Read on to find out.
Types of Installment Loans
There are a number of terms for installment loans. You’re probably familiar with mortgages, auto loans, personal loans, and student loans.
These are all types of installment loans. These loans take your interest amount along with the amount you borrowed and spread payments across a set number of months. That can be anywhere between 24 months and 30 years.
Each payment is usually made on a monthly basis. These payments are called installments, which is how these types of loans got their names.
Installment loans are great because you can get a loan for just about any reason. A student loan will help you pay for college. A mortgage will help you buy a home. A personal loan can be used for anything.
The biggest difference between these types of installment loans is the amount you borrow. Obviously, with a home loan, you’re going to borrow quite a bit of money, anywhere from $190,000 for first-time homebuyers to $309,200, which is the average mortgage loan in the U.S.
Personal loans tend to be for much less. You can take out a personal loan for $1,000 to $50,000. You’ll want to make sure that you know what you’re planning to do with the funds before you apply for the loan.
Where to Get Installment Loans
There are three primary ways you can get an installment loan, no matter what the loan is for.
Banks: Banks and credit unions are considered to be direct lenders. That’s because you’re working directly with the bank on the loan. Most banks will offer personal loans, home loans, and auto loans.
Brokers: Brokers basically do the loan shopping for you. They will take your information and submit it to various lenders. The lenders will come back with terms of a loan and the interest rate of the loan. Brokers are very common in the mortgage industry.
Online Lenders: Personal loans have become more popular over the last few years because access to cash has become much easier.
There are online lenders who offer monthly payment loans of all types. These online lenders can be direct lenders.
They can also be in the form of aggregators. Aggregators function like a broker, where you enter your information and you get a number of lenders and rates.
There are also peer-to-peer websites that offer loans as well. These sites are funded by investors who prefer to make their money back on the interest rate.
A Quick Guide to Getting an Installment Loan
Getting an installment loan will take some work on your part. The more money you need, the more work you’re going to have to do to get the loan.
That’s because banks want to make sure that you’re going to pay the loan back on time and in full. They’re risking a lot to finance a major purchase like a home.
Smaller loans, on the other hand, don’t have such strict requirements. You can even get a personal loan with bad credit or no credit at all. The interest rate may be higher with these types of loans, but you can still obtain them without much of a problem.
Gather Your Information
Step one in getting a personal loan is to get your information together. Lenders will have different requirements depending on the type of loan and how much you want to borrow.
You’ll want to know what your credit score is before you apply. You can check your credit score by pulling your credit report from AnnualCreditReport.com. If you have credit cards, you can see if your card issuer has a program where you can get your credit score for free.
Other information you will have to get are your most recent pay stubs and banks statements. For larger loans, you may have to prove steady employment for a two-year period and provide tax returns.
Improve Your Credit Score
You may want to take your time to improve your credit score before you apply for a loan. That patience can pay off in thousands of dollars saved in interest payments.
The best things to do to improve your credit score are to fix any errors on your report. You never know if someone took out a credit card in your name and ran up the bill.
You can also pay down your debts as much as possible. The less credit you’re using compared to what you have available can make up a large part of your credit score. If you have $1,000 in credit available and use $950 of that credit, that will bring down your credit score.
Now, if you have $1000 in credit and only use $100 of that credit, that will bring up your score.
If you’re getting a loan to cover an emergency, you’ll have to skip this step and hope that your financial situation doesn’t impact your interest rate too much.
Shop Around and Apply
When you’re applying for an installment loan, you should shop around to get the best rate for your situation. You want to make sure that you can afford the monthly payments, the interest rate is low, and the length of the loan is manageable.
You don’t have to go with the first offer on the table. Take your time and look at the pros and cons of each lender before you decide.
Installment Loans Instead of Cash
Installment loans are a smart way to finance large purchases and projects without having to come up with a lot of cash at once.
You can get an installment loan for any reason. You just want to make sure that you find the right lender and loan that fits your needs.
Do you want more content to help you with your finances? Come back to the Money section of the blog regularly for more great articles.