Installment loans are the perfect financial instrument to help you tide over financial trouble. The number of banks and financial institutions offering such loans is ever expanding. Installment loans help you to pay back the loan in equal monthly installments which makes repaying the loans even easier for you.
We will today go into the details of installment loans and help you decide whether you should opt for it or not.
What is an installment loan?
An installment loan is a loan which is repaid over a pre-decided schedule and monthly payments. You will sign a contract with the lender agreeing to pay back the loan in monthly payments.
Details about installment loans for people with bad credit score:
Many banks and financial institutions offer you installment loans even when you have a below-average credit score. This allows you to pay back the loan over a longer period of time. As a result, the repayment schedule will not be that harsh. The interest rates are mostly fixed which allow you to pay off the loan easily.
The prime advantage of installment loans is that if you want to pre-pay them, there is no extra charge. Thus, you will not have to spend any extra money in order to close the loan in advance.
Before you opt for the installment loans, it is a good idea always to look into the pros and cons of these loans. This will help you better understand whether this is the right type of loan for you or not.
Pros of installment loans:
1. Equal installment each and every month:
The main advantage of the installment loan is that you have to break up the entire loan amount into smaller monthly payments. The monthly payments will be the same each and every month. As a result, it will not put a lot of strain on your financial health. You will be able to pay in a staggered fashion without any problem. This is the reason why installment loans are so popular with consumers.
2. Fixed interest rate:
Most of the installment loans work on the fixed interest rate. This means that the interest rate will not change throughout the tenure of the loan. As a result, you do not have to worry about increasing monthly payments.
3. Loans for people with bad credit score:
Many banks and financial institutions offer installment loans for bad credit. There are very few financial instruments which can be accessed by people with subpar credit score. Installment loans are one of them. As a result, irrespective of your credit score, it will be very easy for you to get a loan. Moreover, as you go on paying each and every monthly installment, your credit score will also improve on a consistent basis.
4. Low cost of borrowing:
The total interest outgo will also be on the lower side. This ensures that not only you are able to get credit but you are able to get credit at a lower interest outgo as well. This is another advantage of the installment loans.
Thus, when you want to opt for an installment loan, it is important to keep all of these advantages in mind.
Cons of installment loans:
1. Stringent checks:
Even though most of the banks and financial institutions can ignore your low credit score but the debt to income ratio and verification of your income sources are taken into account while issuing the loan. These are pretty stringent checks. If you do not clear these checks, you will not be able to get the installment loans irrespective of your credit score.
In order to make sure that there is no default on the payments, many lenders only provide the installment loans to salaried and working class. Thus, if you own a small business, you might be rejected for the installment loan irrespective of your credit score.
2. Entire pre-payment might not be allowed:
Most of the lenders might allow you to partially prepay the loan. However, the entire closure of the loan might require you to pay a penalty. You have to look at the terms and conditions of the installment loan before opting for it. If you plan on prepaying the installment loan, it is a good idea to choose the lender who does not charge any prepayment penalty.
When you choose such a lender, it will be easier for you to prepay the loan and reduce your monthly obligations quickly. This will allow you to lower the interest outgo significantly. When you pay off the installment loan in advance, your credit score will improve significantly as well.
3. High penalties in case of default:
In case, you’re not able to pay any monthly installment, the penalties and the interest rate will be higher on the pending payment. The total interest outgo can increase significantly in such a case. That is why; if you opt for an installment loan, do make sure that you honor each and every monthly payment.
So, if you plan on opting for the installment loan, it is important for you to look at these pros and cons. While installment loans might look like the perfect financial product but it is important to take the cons into account as well. Only when you are able to look at both the sides of the coin, it will be very easy for you to decide whether this is the right loan product for you or not.