A lot of borrowers get stuck in a cycle of borrowing if they choose payday loans because of their high interest rates. But, many people take out this type of loan because of the low qualification and credit requirements. Fortunately, borrowers today have a much affordable option in the form of installment loans. These loans offer some benefits over payday loans, revolving credit lines, and credit cards. Also, they can help borrowers build a positive credit history.
What is an Installment Loan?
An installment loan is a loan that borrowers need to pay in equal payment amounts at regular intervals over a predefined period. Installment loans are personal loans that can be used for paying student loans, a home renovation, car purchase, and vacation expense, as well as consolidating debts. People who are looking to improve their credit score should take out an installment loan as it can help them manage their debt payments.
Installment Loan Term
Typically, installment loans run for a period of 6 months to 5 years, although they may also run for a shorter period. Borrowers just need to find the best site for instant approval loans with no hard credit check. Revolving credit lines and credit cards don’t have fixed terms; however, they have a credit limit. Maintaining a good credit record will automatically increase this limit. Meanwhile, those who take out payday loans usually renew their loans every couple of weeks, every time their paychecks arrive. They will need to renew as the average loan interest rate payment is more than 50% of the principal amount they borrowed. This usually leaves them without extra funds to pay expenses for the upcoming month.
Interest rates for installment loans vary from 6% to 36% but they can be negotiable with some lenders. Credit card interest rate is 13.64% on average. Payday loans charge higher interest rates which range from 20% to 700%. Luckily, installment loans allow borrowers more control over the loan rates. Their credit rating and other factors determine the rates.
The fixed monthly payment for installment loans allows borrowers to gain control of their expenses and budget. Revolving credit lines and credit cards let them borrow any amount up to the credit limit and their monthly payment can also vary. They can make a minimum monthly payment; however, this will lead to paying more in rates and less towards the principal loan amount.