Many people use instalment loans to pay for a home, car or even part of their college tuition. But, what is an instalment loan? An instalment loan is basically a loan where the principal and interest are repaid in scheduled instalments. These instalments are made at fixed intervals. Mortgages and vehicle loans are types of instalment loans. Since instalment loans are repaid in series of repayments/instalments, they take a longer time to settle than short term loans. Normally, they have low interest rates and higher loan amounts than short term loans. Although instalment loans may have low interest rates, it doesn’t mean their total cost of credit is automatically lower. This is because the cost of credit is influenced by several factors such as type of loan, the lender, borrower’s credit history and the loan amount.
One of the main benefits of instalment loans is that they provide flexible repayment periods since you are not required to fully pay the principal amount and interest on the due date. Rather, you will be required to make regular payments over a specified duration of time. This allows a borrower to create a monthly budget which shows the exact amount they need to allocate to their expenses and the loan. However, is important to note that the degree of flexibility and scalability differs from one lender to the other. Another advantage of instalment loans is that they can be used to build credit for borrowers with bad credit history, no credit history or poor credit history. Since these types of loans require several repayments over a period of time, they can help a borrower create or build a history of repayment.
Tips for Applying for an Instalment Loan
- Choose an Appropriate Type of Loan
Before applying for an instalment loan, ask yourself the following questions;
- What is the reason for taking the loan?
- Do you need a large or small amount of cash?
- What period of time do you need to repay?
The answers to these questions will help you decide the type of loan that works best in your financial situation. If you need large amounts of cash or a longer repayment period, then you should opt for an instalment loan.
- Compare Lenders
There are several lending options out there, from credit unions to banks. The best place to start shopping for an instalment loan is your credit union or local bank because you have already established a relationship with them. Your local bank or credit union may also offer favourable rates. However, you should not limit your search. Try to consider several options including friends, family and online loan lenders. Your top priority should be finding a reliable and trustworthy lender. You can visit lender’s websites to compare their APRs and rates and terms. You can also contact them to get more information. Finally, try using a reliable lender review site that presents and compares various features of different lenders.
- Check Your Credit History and the Lender’s Requirements
No matter the urgency or reason for taking the instalment loan, you need to check and understand your credit rating and credit history. Your credit history has important information that lenders use to determine your eligibility for a loan. Ensure you visit a credit reference agency before going to apply for a loan. After checking your credit rating and history, you need to know the requirements of potential lenders. Try to find out their loan terms, interest rates, loan amounts, repayment periods and their policy on credit checks. You should have this information upfront to avoid incurring hidden fees and charges. Make sure you go through the fine print and ask for clarification if there is something you don’t understand.
- Choose a Reasonable Loan Amount and Repayment Schedule
After determining the right lender, you need to choose reasonable instalments and repayment schedule that will work best in your financial circumstances. The best way to do this is to create a budget to assist you assess your finances so that you can settle for a loan you are capable of repaying. As with any type of loan, the greatest risk is failing to make payments on time. Late repayments can lead to higher interest rates and other penalties. You can avoid this by creating a definite budget and finding a transparent, reliable and flexible lender.