You can borrow money in various ways. There are credit cards, which are a type of revolving credit where you borrow money from a credit card issuer. Another way to pay for your expenses is to use installment loans. Most people know about this type of loan; it is just a common credit product. Installment loans are closed-ended loans that must be repaid within a set time.
But, are these loans the best option? Read on to understand that.
Why Installment Loans are the best
Installment loans are good, but their usefulness depends on your credit, borrowing needs, and current financial situation.
This borrowing option has various benefits. Here’s why they are the best loan options:
1. Improves your Credit
Installment loans are a better way to build your credit score. This is because the payment history usually is 35% of the credit score. So, if you make every payment on your loan in full and on time, your score is likely to increase over time. This is an easier way to improve that 3-digit number which greatly impacts your financial life.
2. Finances your large purchase
With installment loans, you can buy that large item you’ve been yearning for. It could be a car or a house. Installment loans are your best option to make your dream come true. So, if you don’t have enough money to pay for your long-awaited asset, there are loans.
With high costs of living and everything costing a fortune, it could be difficult for people to buy anything. Luckily, there are installment loans that are easier to obtain. You can easily buy anything you want.
- Predictable Payment Amount
Credit cards do not offer fixed payments or interest rates. As for installment loans, you will repay a fixed amount every month. They are very different from other loan options. Their fixed payment makes budgeting easier. You will know how much to pay every month.
Besides, these loans are designed with a set term of 2 or 5 years, and you will know when you’ve completed paying the loan.
- Chance to refinance
When your credit score improves, or the interest rate reduces, you may get the chance to refinance. This may reduce your monthly payments or shorten your repayment tenure. Even though it is a great deal, refinancing may be associated with costs and drawbacks.
- Different Types of Installment Loan Options
One of the best thing is that installment loan is available in various types of loans. The most common type of installment loan we know of is a personal loan. Other common types of installment loans are mortgages, auto loans, student loans, etc.
You can use personal loans for almost all legitimate expenses. Banks, credit unions, as well as online lenders provide personal loans to those who are eligible. After availing of a loan, you will repay it in fixed installments every month. These loans can have a fixed rate as well.
Most personal loans are unsecured, which means they do not require security. Due to this, lenders offer such loans at higher rates than secured installment loans like auto loans. Loans without collateral are very risky for the lender, so you may pay a high rate.
The best part is that you can use personal loans for almost every expense, such as weddings, vacations, or paying education fees. However, not all lenders will provide loans for the same purpose.
There are some firms that have restrictions on the purpose for which you intend to use the funds. Therefore, ensure you meet your needs before you sign for the loan.
These are installment loans for financing a college education and other related costs such as housing, supplies, tuition, books, and so on. There are online lenders that offer student loans.
3. Auto loans
Generally, auto loans are provided to help individuals buy a car or a vehicle. Many dealerships provide in-house financing, while banks and lenders provide auto loans at a lower rate with flexible repayment terms.
However, before you take out an auto loan, you should do a financial audit and draft a repayment plan that will work with your budget. This way, you will be able to repay the loan without any difficulty.
Auto loans also provide fixed rates, just like personal loans. But they are secured, meaning your car will be used as collateral. The bank may seize your car when you fail to repay the loan fully.
- Mortgage Loans
We take mortgages to buy a home and use it as collateral for the loan. They are similar to auto loans because they are for a specific purpose. Mortgage loans tend to have longer tenure, ranging from 15 to 30 years.
If you want to keep your finances in order, getting an installment loan couldn’t be a better way. It could be a win for your life. However, installment loans could be a good or bad option depending on how you manage the funds.
Since you are armed with reasons why installments are the best options, you can see that they are one of the best loans. If you have an expense, get a loan from lendingplate. The instant approval is what sets them apart from other lenders.