Installment loans are a type of loan in which the borrower receives a lump sum of money and repays it over a period of time with interest. These loans can be used for a variety of purposes, such as paying for a major purchase or covering unexpected expenses.
According to a Federal Reserve survey, nearly two-thirds of Americans do not have enough savings to cover a $1,000 emergency expense. As a result, many turn to installment loans as a way to access the funds they need.
Although they can be a valuable source of financing for many people, installment loans are not for everyone. This guide aims to answer some frequently asked questions about installment loans and discuss whether longer installment loan periods are better than shorter ones.
What Is The Difference Between A Short-Term And Long-Term Installment Loan?
A short-term installment loan typically has a repayment period of 12 months or less, while a long-term installment loan can have a repayment period of several years. Otherwise they generally work in the same way as other loans with a payment plan of monthly repayments on a date agreed upon with the lender in the contractual agreement.
Are Longer Installment Loan Periods Better Than Shorter Ones?
For some people, longer installments can be better. Longer loan periods can result in lower monthly payments, making it easier to manage your cash flow. However, you will end up paying more interest over the life of the loan. Shorter loan periods have higher monthly payments, but you will pay less interest in the long run, saving you money.
It depends on your financial situation and borrowing needs. If you think that a shorter loan period is manageable, this option will result in you paying less money in total. However, the best plan is the one you can stick to.
What Are The Advantages And Disadvantages Of Longer Installment Loan Periods?
Longer installment loan periods make it easier to manage your budget and cash flow. This can be very helpful if you have other financial obligations such as rent or mortgage payments.
The main disadvantage of longer installment loan periods is that you will end up paying more interest compared to what you would pay with a shorter installment loan. You will also be in debt for longer.
Can I Pay Off My Installment Loan Early?
Yes, many lenders allow borrowers to repay their loans early without penalty. This can be an ideal option if you want to save money on interest and pay off your debt faster. However, some lenders charge early repayment fees for people who want to pay off their loans before the agreed timeframe. Be sure to carefully read the terms and conditions of your installment loan agreement to avoid finding yourself in a situation like this.
How Do I Apply For An Installment Loan?
To apply for installment loans, you will typically need to fill out an application with a lender and provide information about your income, employment and credit history. The lender will then review your application and determine whether to approve or deny your loan request. If you fill in our quick online submissions form, we will match you to the best lender for your unique borrowing needs.
Are There Any Fees Associated With Installment Loans?
Yes, there can be fees associated with installment loans, including:
- Origination fees: One-time fees charged by lenders to cover the cost of processing a loan application. These fees can range from 1% to 8% of the loan amount.
- Late payment: Fees charged by lenders when borrowers do not make repayments on time.
- Prepayment penalties: Fees charged by lenders when borrowers pay off a loan early, before the end of the loan term. Not all loans have prepayment penalties.
Can I Get An Installment Loan If I Have Bad Credit?
Yes you can get an installment loan with bad credit, although it may be more difficult. There are even some lenders who specialize in lending to people with poor credit. It is also worth noting that you might be able to get a loan secured against collateral such as your house or car, which might lower these high interest rates.
How Long Does It Take To Get Approved For An Installment Loan?
This can vary between lenders. Some offer approval within minutes or hours of completing a loan application, whereas others will take several days to make a decision.
How Much Can I Borrow With An Installment Loan?
The amount you can borrow with an installment loan depends on each lender as well as your own creditworthiness. Some lenders may offer loans ranging from a few hundred dollars to tens of thousands of dollars. You can apply for a quote using our calculator.
How Do I Make Payments On My Installment Loan?
Most lenders allow you to make payments on your installment loan online, by phone or by mail. You will generally have to pay the same set amount each month. To do this, you can set up automatic payments to ensure that your payments are made on time each month.
What Happens If I Miss A Payment On My Installment Loan?
If you miss a payment on your installment loan, you may be charged a late payment fee, have to pay extra interest and your credit score could be negatively impacted. So if you think there is a chance you might miss a payment, get in touch with the lender straight away as they may be able to offer you a more flexible repayment plan or freeze the interest on your loan.
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Justine is a full-time writer with lots of expertise and a wealth of experience in the financial world. In particular, she specializes in household income and consumer finance across the United States. Follow her articles for useful advice and top tips, guides on how to save money and lots more.