The most basic definition of an installment loan is when someone lends you money and you pay them back a little at a time, with a few dollars thrown in for the use of their money. This simplistic approach works with your cousin Bob. In the finance world, installment loans are an agreement between you and a lender to borrow money and make monthly payments, with interest, over time.
While your cousin Bob may have a few dollars to lend you to fix a flat tire, he likely won’t lend you money to buy a new car. That’s where lenders that offer consumer loans come into your life. Here is how the process works and why it might be useful to you. No disrespect to your cousin Bob, of course.
Why Get an Installment Loan?
Unless you save every dollar you make and always have enough in the bank to buy what you need, an installment loan is a good option to cover those purchases. There are a number of reasons to secure an installment loan:
1.) To purchase a new car to replace the one that just broke down
2.) To cover tuition and fees for you, or one of your children, to go to college
3.) To purchase your first home
4.) To pay for a summer getaway on the beach
5.) To consolidate your bills into one reduced monthly payment
6.) To pay for an elective cosmetic surgery that is not covered by insurance
As you can see, installment loans are useful for many aspects of a person’s life.
Where Does a Person Get an Installment Loan?
The consumer loan business has grown to include many sources to which a person can turn. Where you go to get your loan depends on a number of factors. Here are a few of the places that offer consumer loans and why you might use them.
Online Consumer Loan and Loan Matching Websites – Start today with companies like betterloanchoice.com. You’ll complete an application on their website and, in an expeditious manner and if approved, get a quote back saying how much participating lenders will lend you and what it will cost. If you accept the offer, you’ll get a check in the mail in a few days, or they might deposit the funds in your bank directly. Many of these businesses work with people who have poor or no credit, so they can be the ideal source for a person just starting to build up their credit rating.
Banks, Credit Unions, Finance Companies – These businesses offer a variety of consumer loans from auto loans to home mortgages. You’ll often need to visit the company and speak to someone in person. These businesses usually require you to have an average or above credit rating. You’ll make a payment of the same amount each month until you’ve paid off the loan.
Buy Here/Pay Here Retailers – There are car lots and furniture stores which offer the opportunity to purchase from them. You’ll then make payments directly to them. These businesses don’t use other finance companies to handle the loan. They do it themselves so they have better control over the interest rates they can charge. These businesses often specialize in working with people who have poor credit ratings.
How Does a Person Get an Installment Loan?
For a traditional installment loan through a bank or online lending agency, you’ll need to complete an application. The lending company will likely run a credit report on you, as well. They will use the application and credit report to decide if you are a good risk for them. The company wants to be confident that you’ll be able to make the monthly payment on time each month until the loan is aid off.
The key items that they look for in all of this information is:
1.) Your current and past employment information to show that you have steady work and don’t move from job to job every few months.
2.) Your current and past addresses to show that you have a stable living place.
3.) Your annual income to show that you can afford the monthly payments.
4.) Your debt-to-income ratio which shows whether you have too much debt based on the amount of income that you make each month.
5.) Your credit rating which shows how well you have managed your credit with other lending institutions.
It’s important that all of this information is accurate on your credit report. It’s also important that you handle your credit responsibly. Your credit rating is affected by how well you make your monthly payments and that you don’t have an excessive number of loans and credit cards. If your credit report shows that you have made late payments or have missed payments completely, your credit rating goes down and you’ll have difficulty finding a business to give you a loan.
Another reason to have a good credit rating is that companies will adjust the interest they charge for using their money based on how good your credit rating is. If you have a troubled credit report, you will likely pay much more in interest charges and the amount the company will lend you will be less than to people with good credit.
When you plan to get an installment loan, make sure you understand the terms and finance charges associated with it. Before you accept the loan, be sure that you can make the monthly payments, or you’ll risk damaging your credit rating if you can’t.
This information was brought to you by BetterLoanChoice
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