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How Do We Define Installment Loan?

Perhaps you are here since you want to learn more about lendings. If so, there is no doubt that you have come across the term installment loan as one of the probable choices you might consider. But then, how do we define installment loan?

In this article, we are going to elaborate on the basics of installment loans, how they compare with the other borrowings such as payday installment loans, how to avoid getting trapped into payday and installment loans debt circle, various types of installment loans, and whether it is a wise financial decision to get these credits.

What is an Installment Loan?

Installment loans definition is simple as its name suggests. It is basically any credit that is given to a borrower in fixed amounts, which is expected to be paid back in equal amounts. The payable sum is usually the principal amount, interest rate, and any other fee charged by the creditor. The terms are that the borrower makes installments every month, though some creditors accept weekly or bi-weekly installments.

Some typical installment loan example is non-secured credits, mortgages, auto loan, and college lendings. However, some credits that financial institutions call installment credits are short term installment borrowings, similar to payday installment loans.

What is an Installment Loan

Basically, installment loans are given in significant amounts, and their repayment period is usually longer compared to payday installment loans. However, the loan amounts are smaller compared to average unsecured credits. The interest fees charged on installment loans are also considerably bigger than those charged on unsecured credits, also known as personal lendings.

Many lenders allow you to take a maximum of $10,000 and repay it within a few months or a maximum of sixty months, contingent on what you agree. Just like payday lends, installment borrowings are a trap to folks with unappealing credit rating, though those with good credit rating can take them too. So, when considering payday credits, be extra watchful to avoid some of the unfavorable conditions, which make settlement of the loan a nightmare.

One thing that makes installment credits favorable to many folks is their convenience of applying and getting appropriated for the credit. For instance, there are numerous online creditors that can give you these lendings quickly as long as you meet the loan requirements. Applying for an installment loan online is a sure-fire way to get access to a lot of money and fast.

However, though the lender doesn’t dictate how you can utilize the online installment loan, it is wise to apply for an installment credit only if you urgently need it. The rationale behind this reasoning is that these credits come with predatory interest rates compared to other forms of individual financing. For instance, you may opt to apply for an installment loan online for:

  • Medical bills: you may use an online installment loan to pay off medical expenses, especially those that are not covered by your insurance cover.
  • Improving your credit: you can opt for an installment credit to enhance your creditworthiness, specifically if you repay the loan within the term dates. If this is your main aim, you should opt for a credit enhancing loan from a credit SACCO or your area bank. The credit enhancing lendings characteristically charge low rates and don’t need a high credit requirement, hence aiding you to enhance your credit rating.
  • Auto or building repairs: sometimes your car might develop mechanical issues, and you don’t have money to cater for the repairs. Opting for an installment credit could help you meet that need.
  • Overdue utility bills: and when you don’t have money to pay for your home’s utility bills, getting an online installment loan can assist you to go for some days with your water running and electricity in your apartment. These are just a few reasons why you can consider installment loans, there are more.

Types of Installment Loans

Many lends that borrowers take out are generally installment loans. Here are some regular types of installment loans:

These types of installment loans are usually expected to be repaid over a time frame of one to eight years, though some creditors don’t provide lendings within this range. However, it is worth noting that if you opt to repay the loan for many years, you may pay smaller installments, but the rates are designed to be higher. This implies in the long run; you will pay more for a car if you select an eight-year loan, even though you would be paying smaller amounts in installments, than if you chose a three-years lend.

When you take a mortgage, either the bank gives you the cash to buy the structure, or it gives you the home, which stands as collateral. Mortgages are long term installment loans that are supposed to be paid off over a 15 to 30 year period, with monthly installments.

Personal borrowings, also called unsecured lendings are short term installment loans which a person can apply to meet different needs such as debt consolidation or to pay for unexpected expenses. Their repayment term usually ranges from one to eight years. Since they are short term installment loans no credit check, they tend to come with high-interest rates compared to other installment lends. Even for folks with poor credit rating, it can be considered for non-secured borrowings, especially by the moneylenders who provide bad credit installment loan.

Nevertheless, you expect to be charged more than people with exceptional credit rating if you get approved for an installment loan for bad credit. The credit rating significantly determines the interest rates for unsecured credits.

These are basically short to long term installment loans with no credit check. With student lends, you get a specific amount of cash while in school. The student is customarily credited that amount for the entire period in the college. After graduation, a student is given a grace period, which in most cases is six months; after which he should start making payments. There are various types of student’s lendings. Some have variable interest rates while others the interest is fixed. Failure to repay the credit attracts a fixed fee, which is added to the principal amount.

Why Do People Prefer Installment Loans?

People turn to online installment borrowings because of many motives. Here are some pulling factors:

  • The application procedure is convenient: when a need arises, you can just take your handset or laptop and apply for the value of installment lend you need. The process is easy and it takes only some minutes.
  • Quick bankrolling: when you send your application request, you can access the status of your loan instantly. If the request is appropriated, you can take the credit and get the cash in your preferred bank account within hours or the next commercial day.
  • They are less stringent on entitlement requirements: you can get approved for an online installment loan even with a negative credit rating. Their lending evaluations are less stringent. They don’t carry out hard credit queries on your credit profile, but then you must show them that you are capable of repaying the loan.
  • Flexible fees: the sum of money you apply for, the creditor you select and your area of residence will likely affect the interest you will be charged on your loan.
  • Loan value and terms: the value of the lend and conditions are likely to be determined by the local federal laws and the credit provider.

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Predatory Lenders Are Always Knocking: Be Vigilant

There is a general belief that individuals with bad credit are the ones that apply for installment loans online. That is not true. Installment lendings are designed for both individuals with good credit rating and those with poor credit ratings. However, you might not identify this if you conducted a cursory google search. For instance, some cunning lenders repackage what we would call a payday loan to look like an installment loan in a bid to masquerade it to look less perilous.

Just like payday installment loans, installment borrowings attract exorbitant interest rates and normally share the same characteristics that can trap you in a spiteful debt cycle. This can only be avoided if you understand them:

An option for credit renewal

What happens when you are unable to pay off the credit after the given period? Does your creditor tell you to “rollover” the credit? If so, you should consider another creditor, since this is a typical route of how you might be ushered into a liability cycle.

Guaranteed approval

You will be surprised when you approach some creditors wanting to request for a credit, and even before you make a move, they assure you that you will receive it. These moneylenders aren’t taking your financial needs seriously. Credible lenders will scrutinize your request to be certain that you are capable of repaying the money, before approving it for you.

The creditor approached you

If you get endless emails, texts and sometimes calls, that is possibly a scam. Genuine creditors might send you an email or two at most. If you sense that they are persuading you to get the loan, run.

Persuade you to take more than you require

The bigger the credit you get, the higher the interest you would pay. They understand that. A creditor, who persuades you to borrow more than what you are requesting, cannot have genuine interests in mind.

Payments and upfront fees

Legitimate creditors that include some fees such as the instigation fee don’t ask for it before you get your money. If a creditor asks for upfront or any other form of payment before you get a loan, don’t bother dealing with him.

Insurance add-ons

Some crafty creditors advertise insurances that seem as if they care for your welfare. But these add-ons are crafted to safeguard them against financial loss in case something occurs that impact on your credit repayment, e.g., incapacitation or death. Although this is a fee, creditors don’t incorporate it in the APR.

What are Requirements for an Installment Loan?

There are some universal things you must meet to be eligible for installment borrowings:

  • Proof of income: when it comes to income requirement, it doesn’t imply that you should have a big business or nine to five job. But you need to provide a form of revenue such as a part-time job, incapacitation proceeds, or even welfare.
  • You should possess an operational account: in case you don’t have one, you can receive your cash from the branch in your area.
  • Federal-issued ID: creditors will always request for your ID to ascertain your age. To be eligible for loan application you should be aged over 18 years.
  • Your physical address: you should be a resident of the country where you are considering to apply for your loan.

Tips on How to Find the Best Installment Loan

Think about what you value most

Do you need the loan quickly? Then you should think about installment loans online. What about if the overall cost is what you are more concerned about? In this case, go for your credit SACCO or your area bank. Consider whether what you opt for you qualify for it as this will facilitate your search. For instance, if you choose banks, do you have an excellent credit rating to be appropriated for the loan?

Think about your credit card

Can it be a better option? Credit cards usually attract significant interest rates compared to the non-secured lendings, but that doesn’t hold when it comes to online installment borrowings. Your credit card could probably be cheaper to use if you haven’t reached the set limit.

Consider the APR and not only the interest

The APR of any given credit provides a better peek of what the factual cost of the credit is. This is because it includes the fees and interest.

Don’t ignore personal lendings

As I said before, some lenders utilize “unsecured credits” for predatory purposes. You may be lucky to get a genuine creditor if you also search for a personal loan.

Compare financiers

With so many loan creditors, you will not be doing justice for yourself if you choose the first creditor you land your eyes on, on the website. It, therefore, makes sense to sample various lenders and choose the best one who offers favorable terms.

Don’t be duped by long term-guarantees

When a creditor tells you that he offers lends with long-term repayment durations, inquire about the interest rates. Such borrowings usually carry extravagant-interest rates, and you end up giving more than if you had taken the same credit amount for a shorter period. While the low monthly installment payments could be attractive, you might be surprised when you figure out the amounts you would pay in the long-run.

What to Ponder When Comparing Loans

You should only borrow what you require. Some lenders will try to persuade you to borrow significant lends to earn high-interest rates. Don’t be duped, but only get what you had planned to borrow.

Don’t accept any loan before you know its interest rate. Some phony moneylenders give you credit before making clear the interest it attracts only to provide you with the details of the loan later. Try to find out the estimated APR before applying for any short term or long term installment loans.

Some creditors require that you pay some expenses such as origination fee. So, consult to know if there are any fees charged. You also want to find out whether there are any other types of charges you may pay when you take the lend. For instance, some creditors would demand that you pay late installment payment fees.

Depending on the value of your credit, your repayment terms could range from a few months to years. The credit terms also affect the interest rate charged on loan. Generally, a long-term installment loan is more manageable, but in the end, the borrower pays more in the form of interest. Long term installment loans usually trade-off low monthly installments for higher interest rates. So, it is recommended to opt for short term installment loans that you can pay comfortably. The shorter the time you take to pay off your credit, the more you keep as interest rates.

How prompt will the cash get into your account? Applying for installment loans online allows you to get the cash quickly when you need it, but this comes with higher interest rates.

Can I Get an Installment Loan with Variable Interest Rate?

Generally, most installment lends have fixed interest rates though you may get some with flexible rates. Financial institutions and online financiers know that most people desire fixed interest rate credits over those with flexible rates since they allow them to plan how to pay for their monthly expenses.

However, it is essential to be aware of the fees offered by the financier before accepting the loan. Some creditors accept both types.

In most cases, lends with flexible rates usually start with lower rates compared to fixed borrowings. However, with time, they rise significantly and almost equal for fixed credits by the time a borrower pays the loan off.

However, that doesn’t always happen. Sometimes variable borrowings tend to be much expensive compared to fixed credits. I know it is not fun when after some months, your monthly payments increase drastically and you have to pay them.

Is It Possible to Pay an Installment Loan Earlier?

You may be lucky to get a lender who allows you to make payments of your installments earlier. Many lenders don’t recognize this (which is understandable since they are lending you money to make interest, and the only way to achieve this is through interest accumulated over the time you are using their money). And for the creditors who offer you an option to make early payments, they usually charge some fees to offset the loss.

On the other spectrum, there are some lenders who don’t care about early payments, and they don’t follow you up. If you think you will be able to pay off the loan earlier, consult with your lender to know whether there are fees.

Is There a Specific Purpose of Taking Installment Credits?

The purpose why you are applying for an installment loan depends on the type of loan you are applying for. For instance, a student loan, an auto loan, and mortgages demand that you utilize the credit for that specific purpose. However, if you receive a personal loan, popularly known as an unsecured loan, you can put the money in the ways you want to use it for. There is no limitation about that.

People normally take personal lendings to cater for unexpected expenses such as home repairs or to fund for significant events such as marriage, relocating, funerals, travels, etc. Regardless of the purpose, you are taking the money for, ensure that the loan doesn’t leave you in the bad financial status than you were before you received it.

How Much Can You Borrow?

The amount you can get as an installment loan from financial firms depends primarily on your financial strength. If you have a high income, excellent credit, and you usually pay off your debts, the lenders can approve considerable amounts of installment loans.

Besides, many regions put restrictions on the total amount you can borrow, and the lender also has a role to play. But quick cash, for instance, is capped at $750 for most states. But you should be warned-just because a particular lender has approved you for the highest loan amount doesn’t mean you get the maximum. Only get what you require and can comfortably pay off.

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What are Payday Installment Loans and is There an Alternative?

A payday loan (cash advances) is a short-term loan solution that ranges between $50-$1,000 that people take, and usually repayable within fourteen days or during your next paycheck. That is why they are referred to as payday lendings.

With payday borrowings, you can pay the loan in unequal installments even before your next payday check or the elapse of the maturity date. These are basically payday loans with installment payments. However, they cannot qualify to be called installment credits since they are short term, and the amount involved is also small.

Just like installment lendings, you can also apply for payday installment loans online. The lenders of these borrowings usually don’t perform any credit inquiry, and therefore, they are pretty easier to apply and get approved for a loan.

However, you should be careful when taking these credits. Theoretically, these borrowings are allegedly intended to be repaid during your next paycheck. This is why they are also called paycheck advances. Why do I say allegedly? Since these lends aren’t designed to be paid back, they are made to trap people with a poor credit score in a cycle of debts.

Payday installment loans

The ease of applying for payday installment loans online, whether bi-weekly or monthly installment payday loans, and the convenience involved in getting the lends make these lendings quite tempting to most people. However, that shouldn’t make you turn a blind eye about the danger involved in payday credits. Before applying for the payday borrowings online, here are a few things you should know.

  • The Interest Rates are Surprisingly High.

    No one would want to risk his money by giving it out to people with financial difficulties. So, when you see the only moneylenders giving credit to you with little consideration of your ability to pay, just know there is a big trap. Since lenders take high risk, they usually overcharge interest rates to offset the loss. You will be surprised to know that some lenders charge as high as 400% interest rate.

  • Failing to Pay Could Cost You a Lot.

    Whenever you fail to pay back the payday loan, the interest is charged every day, and on top of that, there would be other charges you would have to pay. When it comes to loan repayment discipline, most people don’t score high marks. And if this is a situation for employed forks who earn some income, what about for students? The loan accumulates because of interest and fees to thousands of dollars!

  • Online Payday Lendings Can Ruin Your Credit Rating.

    Even if you are disciplined in your loan repayments, the fact that you applied for payday borrowings could cost you a lot when trying to get a mortgage later in your life. These lendings are usually reflected on your credit summary, and some home mortgage lenders will not even think twice about your application before disapproving it. Online payday credits typically portray the impression that you’re a poor financial planner.

  • Payday Creditors Can Deduct Money from Your Account.

    When you register to a payday lender account, in most cases they ask you to register for Continuous Payment Authority. However, what many people don’t know is that agreeing to CPA allows the creditor to deduct money from your account immediately it is due automatically. This can be catastrophic if they do so and you had already budgeted for the money for that month. It could compel you to borrow more money from other sources to pay for urgent bills such as electricity. They could also leave you with an unplanned bank overdraft.

  • They are Predatory in Nature.

    To understand this predatory nature of installment payday loans, take it this way; it is with no doubt that you are straggling to make ends meet and that is why you opt to get a loan from them. And the people who strangle to make ends meet, also strangle to pay back their credit on time. Since the financial hitches you are going through compelled you to consider payday borrowings, it is more likely that you will find it challenging to repay the crippling interest rates charged on these lendings. The nastiest aspect of payday loan companies is that they bank on your financial inability to repay the loan as their primary stream of revenue.

Well, we all agree that installment payday loans are exploitative. But what other options do we have? Well, there is a myriad of better choices you can opt for. You should only opt for payday credits as the last resort.

1. Join a Credit Union

Basically, credit unions aren’t created to make profits but are established independently by members. Traditionally, credit unions used to be formed by people residing in the same geographical area or people with the same faith, etc. However, nowadays, people can create a credit union even when they are miles away from each other.

The rationale is that by eliminating commercial creditors, finances are retained within the community. As such, members can get low-interest borrowings and enable those with lousy credit rating, (who would otherwise, be rejected by banks) get lendings at low-interest rates.

To be eligible to borrow money from a certain credit union, you should have a common characteristic — simply put, have something common with the participants of the union. This could be a family link, business, or anything that people share the same belief on or are involved in.

2. Get 0% Credit Card

You want to get a credit card that would allow you to get credit at 0% for up to two years or longer.

If you are sure that your financial hitches are not long term and you can repay the credit before the end of two years, then this is a desirable option compared to taking payday borrowings.

3. Peer to Peer Borrowing

This could be better compared to payday lendings. Ask for borrowings from your co-workers and agree on what interest rate you will pay them, which will also depend on the length of the loan. However, we want to put a disclaimer on this. If you know you will not be able to repay the loan within the agreed period, don’t borrow. Don’t put the bond of your friendship on edge.

4. Side Jobs

Nowadays, there are many opportunities in the digital marketplace, which you can take advantage of. For instance, you can sell quickly the things you no longer need and get quick cash. You can also sign up for online job accounts and get work online. With these side hustles, you will never see the need of taking payday credits as you will always have some cash to take care of emergencies.

5. Take a Loan

You may want to consider this as the last resort because the interest rates are just slightly better than payday lendings, and getting the loan might not be a walk in the park. Another limitation is that you may not get smaller borrowings since, in most cases, they loan out significant amounts. I would recommend banks only if you know your credit score is incredible.

6. Crowdfunding

If the need is not pressing, you can approach your social networks and initiate a crowdfunding campaign. You are not required to pay the money back, though most crowdfunding sites deduct some fee depending on the amount of money you get.

7. Seek Professional Guidance

If you cannot find a suitable option here to solve your financial hitches, I recommend that you look for professional advice. There are numerous charities with qualified personnel that offer guidance and counseling to people in severe financial difficulties.

What if You Default Your Payday Installment Loan?

According to the research by Pew Trust, it is estimated that over 12 million Americans apply and get payday credits yearly, expecting to repay their loan before the next payday rolls around. However, the chances of borrowers defaulting on payday lendings are extremely high. This year, the Centre for Responsible Lending carried out a study and found out that more than half of people who take payday borrowings default on repayments within twenty-four months of getting the loan.

How Payday Loan Default Occurs

Once you fail to pay the total amount of the loan, the lender drafts the unpaid balance from your bank. If there is no sufficient amount of money in your account, and your bank doesn’t provide overdraft, the creditor will try to draft the outstanding amount several times. Whenever the lender attempts to deduct from your account and continue to get insufficient funds, you are charged an insufficient funds fee by your bank which adds into your debt.

If the creditor is unable to deduct the outstanding balances from your bank, he proceeds to the next step of calling you in person. The lender might send messages, emails, call you directly or reach out to your family members. During this time, the loan balance continues to increase as the lender charges interest, penalties, and fees.

If the lender tries to reach you for two months unsuccessfully, he forwards your payday credits to third-party debt collectors. At this point, you deal with the collection agency, whose loan collection push might be more disturbing compared to that of your lender.

How Does Defaulting a Payday Installment Loan Affect Your Credit Rating?

Your credit rating remains intact up to the point where you are forwarded to a third-party debt collection agency to deal with you. However, immediately your debt is in the hands of a debt collection agency, it is included in your credit report. This will hurt your credit score. The debt collection agency might also forward your information to another debt collection agency, resulting in two different collection accounts originating from a single loan default.

Hostile Tactics That Might be Used to Collect the Defaulted Loan

Either the debt collection agency or the loan creditor can sue you in a court of law for the defaulted loan balances. If the court finds that you are eligible to repay the loan, you might be judged. Now, the payday creditor can obtain a court order to levy your accounts or relish your wages.

While defaulting a payday loan may not get you arrested, some daring payday creditors might threaten to file check fraud charges to compel you to pay back their money (some may actually file the charges and get you arrested)

If you find your creditor using one of these methods, especially filling charges for your arrest, report that to your criminal lawyer. However, if you are asked to appear in a court due to related payday credit issues and you fail to appear, you can be arrested for not obeying a court order.

Avoid Payday Installment Loans

Unless you are going through harsh financial conditions and you don’t have another option, you should never opt for payday lendings. They are among the most predatory credits, that can make you spend the entirety of your life repaying for borrowings.

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Differences Between Payday and Installment Loans

Basis for comparison Payday loans Installment loans
The typical borrower Payday lendings attract individuals who:

  • Have poor credit/ no credit history
  • Low-income earners
  • Have no bank accounts-they apply for the loan in the branch
  • Require small credit with quick repayment terms
Here, there are no “typical” individuals who can take installment lendings. A borrower can:

  • Have poor or excellent credit rating, with creditors considering all
  • Want to get large amounts to pay in installments over time
  • Have need to apply for a secured or non-secured loan
Loan value and amounts
  • They are usually regulated at the federal level
  • You can get between $50-$1,000
  • Standard terms range between one week and two months
  • The value of the loan and terms are determined by individual lenders and therefore, vary considerably
  • You can get between $1,000-$100,000 (depends on your credit rating and the lender)
  • Loan terms range between six months – five years
The cost
  • They are ridiculously expensive. Average APRs can go up to 100%, but your area of residence significantly determines the total cost
  • If you default the loan payments, you may incur more cost due to extra fees and penalties
  • Since the interest rates are determined by the lenders, by evaluating your credit score, the cost will vary significantly
  • However, it is lower compared to payday borrowings
Creditors providing the lendings
  • Online creditors
  • Cash advance lenders
  • Check-cashing stores
  • Banks
  • Credit unions
  • Auto title lenders
  • Bad credit lenders

Final Say

Whether you are considering payday credits or installments borrowings, take some time to make yourself conversant with the terms and conditions of each type of loan. If you know what is being provided, you can prudently shop around for the right installment loan for your current financial situation.

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