Is your paycheck coming on the 20th of every month whereas bills due on the 1st itself? If that’s the case, using credit cards may appear to be a super savior option for convenient purchasing or paying bills in that case. However, you would be surprised to know that the much loved credit card may push you in a bad debt if used for an extensive period. It is well known that the APR (Annual Percentage Rate) for most of credit cards end up to 17% and the subprime cards typically have it as 25%. Obviously one is prone to be trapped in a vicious debt loop as the interest amount might outpace the principal amount due to insufficient funds. Although the number of American households living on paycheck to paycheck has decreased since 2016, there still remains nearly a 24% of them that fall out of this calculation. This means it gets difficult with families to handle unexpected additional expenses along with basic expenses as their checking account gets empty before the next salary payment. In case of a need to finance long term purchases it is always better to know the interest sum upfront so that the debt doesn’t pile up unlike credit cards.
Therefore as compared to short term loans, installment loans online prove beneficial, in terms of paying back if the amount is used responsibly. So if you are looking to finance health related problems and medical bills, emergency home improvements or the cost of car repairs, covering/planning sudden travel expenses or a debt consolidation, an installment loan from the lenders Achieve Finance works with is worth your consideration.
Before we move on to the actual benefits and risks of installment loans, let us take a look at some basics of the credit score.
How does responsible usage of credit improve credit scores?
- Depending upon the number and types of credit accounts, the credit reports get generated.
- No matter whether the account is closed or still open, FICO Scores will consider the total number of credit accounts, check the mix of the retail accounts, credit cards, mortgage loans, installment loans, etc and credit experience with revolving and installment type accounts. All this help creditors understand how one handles credits.
- People with no credit card are viewed as a higher risk when compared to people that have credit cards and installment loans with a good credit history of managing the latter responsibly.
- Although the credit mix may not be a determining factor, it is important especially if there is no other information to base the score upon. For a better understanding, the 10% of FICO credit score depends on credit mix. Hence the latter with a good credit history will surge the credit score.
It is possible that having a bad credit may probe accepting the first offer available to gain an installment loan. There are plenty of explanations across the internet of what an installment loan is, however, it is worth considering the benefits and risks involved before choosing a loan provider.
Benefits of Installment Loans
- Instant and easy application online.
Many online lending sources aim to provide easy funding to installments and small dollar funds online. The process is quite easy: Apply on their online application, receive an instant approval, review and sign the contract for a secured/unsecured installment loan and the funds will be deposited in your desired account!
- Traditional credit check is not applied.
For some small Short-term loans like payday loans or small dollar installment loans Lenders do not check/judge borrower’s traditional credit score. As long as you can pay back the money with the interests summed up there will be no problem at all. The lender will typically use industry specific alternative credit verification.
- Extended time for repaying the loan (up to a year).
Payments of installment loans can be spread out making each payment controllable, well-situated and affordable. Repayment can be done as regularly scheduled payments (bi-weekly/monthly plan) over time avoiding single lump sum payments on subsequent pay-date to pay off the loan. Please be sure to check all payment options available with your lender.
- Flexibility during loan repayments
As mentioned above payments are spread out and there is no need of early payments but early repayment is always accepted. Installment terms can range from several weeks to months or even years depending on the amount and the type (unsecured or secured) of the loan. Thus one can get all advantages of flexible payments.
- Cheaper as compared to payday loans online.
Proposed monthly loan payments are reasonable and manageable as lenders work with their borrowers to ensure such a thing. Interests and the main amount are reduced each month until eventually the loan is paid off. Whereas for online payday loans, an advance check for the balance of the loan, or access to the borrower’s checking account with auto-debit facility is required. Failure to repay the original loan in the stipulated time period means the renewal of the loan. Hence borrowers end up a never-ending cycle of debt. Remember secured loans have lower interest rates as compared to unsecured loans. Some installment loans may also carry APR’s comparable to payday loans so make sure you compare and choose the loan best suited for your needs.
- You can borrow higher amounts than other small dollar loans (up to $5,000).
Installment loans are typically available in several hundred to a few thousand dollars. Borrowers can usually borrow up to $1,000 in case of a payday loan while with an installment loan they can attain up to $5,000.
- Fast transfer of money.
As borrowers receive money directly in their bank account the deposits are fast. Typically you will receive funds within 24-48hrs.
- Possibility to improve credit score
Lender’s data is delivered to the credit bureaus through Installment loans that lenders report. If on-time payments are made every month, credit history and credit score is built over time.
Risks of installment loans:
- Compared to personal loans or credit cards, an installment loan has high interest rates.
- Missed repayment even for a month can damage your credit score.
- One can experience longer period of indebtedness as loans can be repaid over time.
- If the amount is high, a traditional credit check can be performed by some lenders.
When it comes to financing purchases that will repay over months or years, not a lot of financial services are a better fit than a personal installment loan. More affordable payments than that of short-term loans and less interest rates than credit cards seem alluring in terms of installment loans. Showing future creditors that one can handle installment-based credit definitely gives a credit boost, provided the latter is used responsibly.