What are the advantages of bad credit installment loan?
Borrowing constitutes a huge part of every economy with many people requesting for loans due to various reasons. However, people may still want to pay for small expenses on their credit card. Among the common credit, types are installment loans and revolving credit loans. If you need cash for your business expenses, requesting for an installment loan is probably the first thing you will think of. This is because an installment loan is among the easiest to apply and have minimal requirements. It can actually be the best loan for business financing. But you can still use the loan for other purposes including payment of bills, debt consolidation, home improvement among other reasons. So what exactly are installment loans and is it the best option for you?
Installment loans are loans that will require an applicant to repay the debt in fixed monthly installments. Among the most common types of installment loans are auto loans, student loan, and small business loans. The repayment terms can range from months up to years, it depends on the lender. Some Lenders incur a fixed interest rate on the loan, however, there are also lenders with variable interest rates. Paying installment loans for bad credit on time will bring good effects on a person’s credit score.
Breaking down installment loans
Installment loan for a bad credit score is usually defined according to their loan terms
- Long-term loans have a loan term of more than six years
- Medium term loans have a loan term of between two to five years
- Short term loans come with a loan term of not more than two years
Since long-term loans can take several years to be paid, most lenders consider it as highly risky. After all, chances are that something might go wrong in a period of 10 years compared to a two years loan term. In this case, it is mostly the profitable businesses that can issue a high-value asset as collateral which stands a higher chance of qualifying for the loans.
How to get an installment loan
Lenders usually consider the following criteria before approving an installment loan
Credit is among the top considerations when requesting for an installment loan. Your previous credit history acts as proof to lenders that you can pay the loan. If you want to apply for any form of installment loan, it is important to first make sure that you improve your credit score. But there are also moneylenders who are more than willing to offer installment loans for borrowers with bad credit. However, such borrowers tend to qualify for lower loan amounts compared to their counterparts with good credit. Lenders also impose strict terms and conditions before approving the loan to such borrowers.
If you apply for an installment loan in a bank and other lending institutions, you will in most cases be required to issue collateral. Collateral acts as security for repaying the loan. Collateral is in most cases the type of asset you want to finance. For instance, you want to purchase a home, the house will be used as collateral. If you are requesting for an auto loan, then your car will be the collateral for the loan.
- Debt to income ratio
Your debt to income ratio is also an important factor when requesting for an installment loan. This is the percentage of your monthly income that is used to repay the loan. If a large amount of your income already goes to repay other loans, chances are that you may not qualify for an installment loan.
Effects of installment loan on the credit score
When requesting for a loan, most lenders will require you to have an attractive credit score. Applying for an installment loan can be a perfect way to boost your credit score. This comes when you make timely repayments and complete payment of both the principal amount and the interest rate incurred. However, late repayments will negatively affect your credit score.
Advantages of installment loans
If you are experiencing a tough financial situation, filling out an installment loan request form can be the best solution for you. Most installment loans are short-term which makes them the best solution when looking for cash to solve your financial problems immediately. Listed below are the advantages of installment loans for bad credit.
- Faster application
One benefit that comes with installment loans is that online installment loans are available, making it easier for borrowers to request for the loan. This process can only take a few minutes. Provided you show proof of income, have an active bank/checking account and a government-issued ID, you can easily have your loan approved.
- Affordable amounts
The maximum amount of installment loans for bad credit you qualify for is greatly determined by your income. This limits the amount of money to borrow and protect you from being a victim of the debt cycle.
- Fast approval
When your loan request form is approved, you can have the money in your bank account in as soon as 15 minutes.
- No spending restrictions
Another advantage of requesting for an installment loan is that there are no restrictions on using the money. However, it is advisable that you only use the loan for productive purposes. It is also important that you only request for a loan amount that is certain to pay on time and cater for your monthly expenses at the same time.
- Information secure
When you request for an installment loan, be sure that both your personal and financial information will be secure. Personal loan lenders respect borrowers’ privacy and not your phone number, email or home address will be accessed by third parties.
Important considerations before requesting for an installment loan
Some lenders offer installment loans with a fixed interest rate. These rates are normally higher compared to variable rates. Fixed rates also do not respond to the market trends, which means that they can remain high with the decrease in market rate. When looking for an installment loan lender, it is prudent to find the one that offers the loan with a variable rate. Borrowers are also required to adhere to the terms of the loan. Both the principal and interest rates should be paid on time. If a borrower defaults, they may risk losing the asset issued as collateral.
With all the above factors in mind, requesting for an installment loan is one of the best ways to boost your credit score. But you also need to note that borrowing is not enough to boost your credit score, but making timely repayments and completing your loan term is what matters. Installment loans can also be utilized for a variety of reasons. This may be business financing, debt consolidation, payment of bills or emergency expenses. However, requesting for an installment loan is not the only option for you. The line of credit, short-term loans, title loans, and payday loans are other available options. With all the benefits that come with installment loans, feel free to fill up the form!