In the face of unexpected events, most Americans don’t have enough cash to cover their needs. Statistics estimate that more than half of all Americans have less than $1,000 in a savings account.
It’s challenging to get through everyday life without expecting anything to go wrong. Any emergency — be it a car accident, a hospital visit, or even a broken refrigerator — will put Americans in trouble.
To add insult to injury, poor credit can make an emergency even more challenging. That’s where installment loans come in.
For consumers that have a bad credit score (below 630), installment loans can be the best option to get quick money. Installment loan funds are distributed all at once. Afterward, the repayment of the installment loan follows either a fixed monthly payment.
Online installment loans are ideal for emergencies as access to fast cash. Here’s everything you need to know before taking out an installment loan.
Online Installment Loan Basics
Installment loans are actually a broad category that includes many different kinds of loans, such as mortgage loans, car loans, and other personal loans. They tend to be long-term loans that require credit checks.
Payday loans are another type of installment loan. However, its structure is different. They must be repaid over a shorter period, have higher interest rates, but require no credit checks.
As stated above:
Installment loans deliver quick cash in one lump sum
Installment loans require a credit check
Installment loans describe many different loan types
Furthermore, installment loan terms depend on the type of loan and can range from 3 years for car loans to 30 years for mortgage loans. In contrast, a personal installment loan lasts for approximately 12 months.
To get approval for any of the above loans, the individual will be subject to a credit check (more to know on that here: https://www.wisegeek.com/what-is-a-credit-check.htm ) and a fairly long application process.
Installment loans offer an APR of 36% or below, and user payments can be made online, over the phone, or by check.
Another advantage of installment loans is that they help borrowers improve their credit rating — as long as they pay on-time. It provides immediate access to cash, while at the same time, it’s a means to an end toward recovering a bad credit score.
How well individuals can do often depends on the terms of the installment loan that they receive. Keep reading to get more advice on how to choose an installment loan that is right for you.
Choosing an Online Lender
Like any other loan, picking a lender requires a fair amount of research and work. It’s not going to be a simple task, and there are several factors that individuals need to look out for when picking the right loans.
Below are the most important features that individuals need to keep in mind when choosing an online installment loan.
All the different installment loan options out there are going to offer different percentage rates. These range from 6% to 36%, and you should sift through all possible options to get the most favorable rates.
Ideally, individuals should opt for the lowest rates to ensure that the monthly payments are as low as possible.
Online lenders can offer potential borrowers their interest rates ahead of time. This usually requires a soft credit check, which does not impact a borrower’s credit score.
However, applicants need to be careful, as different vendors have different requirements. Understanding these requirements will help avoid any mishaps.
Understand All Fees
Every vendor has different fees, these fees might have different names like an “organization fee” or a “service fee,” but they generally range from 1% to 6%.
In contrast, other vendors might charge a prepayment fee for early repayment. Under no circumstances should a borrower agree to a loan deal before the lender discloses all fees.
It’s up to the individual to be as vigilant as possible because certain vendors will keep some fees to themselves, and may not disclose them until the last minute.
To avoid any excess costs in the future, make sure to go over the contract in its entirety.
Choosing Manageable Terms
Installment loans offer a lot of advantages for needy consumers:
But, one thing to remember is this: the longer the loan term, the higher the interest individuals will pay. Taking longer terms might give borrowers more time to pay, but it also means that borrowers will have to pay more interest.
In contrast, shorter terms are harder to manage, but it means paying a lower interest rate. When choosing the right installment loan, individuals should calculate the monthly payment based on the term length.
Many online vendors offer software that automatically calculates the amount. Everyone should employ a strategy to assess different term lengths to see what monthly payments are the most manageable.
Not all vendors are the same, and it’s already established that they offer different rates for different prices. However, while already offering different rates, vendors also offer different perks — specific features tailored to the individual.
If the individual is consolidating debt, certain lenders will send loan money to creditors on behalf of the loanee. Other vendors offer the ability to change due dates or provide hardship plans if the borrower encounters any financial difficulties.
It’s crucial to consider all these factors before taking out an installment loan. It’s best to have everything working to your advantage with an already poor credit history before taking out an installment loan.
Our Top Picks for Online Installment Loans
There are hundreds of online installment loan options out there, and looking through all of them can be a hassle. Furthermore, those new to the industry won’t be able to identify scams or loans meant to exploit.
Upgrade is one of the best installment loan vendors for those with a bad credit score. They accept a minimum score of 600 and will provide potential applicants with an offer in minutes. Their APR rates range from 7.99-35.97% depending on the amount, duration, and purpose of the loan. Users can easily apply for loans and get ideas on rates using the company’s website.
Simple Fast Loans
Simple Fast Loans is also among the best installment loan vendors for individuals that have a bad credit score. They offer loans ranging from $200-$3,000. These loans have terms up to 5 years.There’s no prepayment penalty, and applicants will also get next day funding. To get an idea of the rates, users can easily apply using their website.
For users that have a credit score below 600, a great option to choose is LendingPoint. They accept a minimum credit score of 585 and offer loans for $2,000-$25,000. The APR rates for these loans are on the higher side ranging from 9.99-35.99%. Money becomes available to the applicant the next day, and there’s no prepayment penalty on the loan.
Another installment loan vendor for users that don’t have a good credit score is Avant. They require a minimum credit score of 580 and offer loans for $2,000-$35,000. The APR rate is between 9.95-35.99%, and they offer the ability to change payment dates. However, applicants will have to pay a loan origination fee, and there’s no option to include a co-signer on the loan.
Online Financing Options to Avoid
Online installment loans are a great option for individuals with bad credit scores, and, if used correctly, are a way to improve credit scores.
However, the same can’t be said for all online financing options, and certain ones are important to avoid.
Payday loans function similarly to installment loans. In addition, they have recently been rebranded as short-term installment loans.
The loans are usually under $1,000 and are due on the next payday. With payday loans, an individual will have to either submit a post-dated check or provide access to the bank account.
It might sound relatively okay, but the issue with payday loans is that it’s nearly impossible to pay them back. Lenders will let individuals roll over the loans with more interest to pay the next day. Interest rates are typically 400% APR on these loans, and individuals get caught in the payday loan debt cycle.
No Credit Check Loans
These loans might seem like a good idea for those with bad credit scores, but they’re essentially just a debt cycle. The combination of high-interest rates, short terms, and lump sum repayment means that borrowers are stuck in a cycle of ever-increasing debt. It’s best to find loans that offer some sort of credit check and security to get the best terms.
While certain loans might require a small percentage to process the application, some can be a complete red flag. There are plenty of up-front loan scams, and there are several signs that borrowers need to address. If a vendor asks for money upfront, then there’s a good chance it’s a scam.
Additionally, these issues tend to arise the most with vendors that don’t offer credit checks. Lastly, do enough research to recognize an offer that seems too good to be true.
Keeping all these things in mind, online installment loans are the best option for borrowers with a bad credit score. They are a useful resource and, if managed correctly, are a path to recovering a good credit score.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes