Not looking to pay back what you borrow all at once? Well, that’s what an installment loan was designed for. An installment loan is a kind of loan that you can repay over time in scheduled monthly payments.
An installment loan can be granted for a few months or as long as 30 years; it depends on the agreement you set with your lender.
Installment loans are useful tools for securing some cash for a new business, college tuition, or any life situation where you need it.
Kinds of Installment Loans
You may have already taken out an installment loan without knowing. “Installment loan” is just a textbook word for any loan that’s repaid over time.
For example, you may have taken out an auto loan for your first car, a not-so-fun student loan, or a more-so daunting loan like a mortgage. An installment loan’s definition is purely based on how you pay it back.
To learn more about the other ways loans can be repaid, check out our blog post on the different kinds of lines of credit here.
Why Would You Need An Installment Loan?
The advantage of taking out an installment loan rather than a non-installment loan is that there’s a bit more flexibility.
Instead of your finances taking a major blow when it’s time to repay your loan, you can take gentle jabs by making smaller loan payments one at a time.
Installment loans are designed to make big purchases more accessible. If we were expected to pay for college or our homes all at once, a lot of us would be stuck at Dairy Queen until we became the Queen herself.
Often, installment loans are our first big financial responsibility and shouldn’t be used as a means to just build credit.
There are plenty of ways to start building credit without using personal installment loans or even credit cards. Consider a credit-building debit card before getting yourself into the messy world of loan applications, missed payments, and interest rates.
But yes, if you need some cash to jumpstart your journey towards homeownership and degree earning, an installment loan can be exactly what you were looking for.
Where Can You Get An Installment Loan?
It’s not hard to find an institution that offers installment loans. In fact, Installment loan lenders are easier to come across than a 20-something year old with a TikTok account.
In most cases, no matter if you’re looking to secure a student or mortgage loan, you can apply for an installment loan with any of the kinds of institutions listed here:
- National banks
- Internet banks
- Credit unions
- Peer to peer online loan lenders
- Mortgage companies
You’ll want to shop around for a while before you decide on where to take out a loan. You can check out the terms of numerous installment loans online and see how their terms compare and how customers review their services.
Depending on if you’re looking for a personal loan or a mortgage, you’ll want to look for institutions that specialize in those areas. Always see if you can leverage your excellent credit history for a better loan offer.
What Credit Score Do You Need To Get An Installment Loan?
As you may have presumed, your ability to secure an installment loan can heavily depend on your credit score.
Different lenders have different terms and requirements, so there’s no set number you’ll need to hit across the board. Despite the differing standards, it’s commonly understood that you’re less likely to secure a loan with bad credit scores.
Generally, any number in the range of 670-850 is considered a good or excellent credit score. The better your score, the more likely you are to be approved.
Don’t feel entirely discouraged if your credit score isn’t in the best shape quite yet. Some online lenders offer guaranteed installment loans for bad credit. We wouldn’t recommend these online installment loans because they often come with higher interest rates, additional costs, and less-flexible repayment options.
It’s best to build up your credit score before pursuing an installment loan. Sprucing up your credit report can help you earn better rates and terms on whatever loan you’re looking for.
Why Wouldn’t You Get An Installment Loan?
If you’re in one of the following three scenarios, we recommend you stay away from installment loans and look for other opportunities:
- You don't have a good credit score: If your poor credit score is making loan agreements appear a bit more high maintenance than you're comfortable with. Focus on building up your credit first.
- You don’t necessarily need one: If you’re only interested in a loan because you want to build credit or diversify your credit mix, then turn to other solutions like the Extra debit card!
- You can’t afford to make regular payments: If you can’t afford to make monthly payments towards your loan, it’s best not to take one out in the first place. A while without cash may sting, but it won’t hurt as much as a missed payment and a damaged credit report.
Different financial circumstances call for different solutions. It’s always best to speak with a financial advisor or credit counselor or brush up on some basics with the Credit Wizard before opening a new account or signing a new agreement.
We’re proud of you for using money wisely and looking into all the available resources; knowledge is power, and you obviously know that.