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Installment Loans – What Should You Know?
Looking for financing can be a stressful experience. There are so many options to choose from – and this makes this process really difficult. The odds are that you’ve come across installment loans, but you weren’t so sure of what they entail. This article aims at clarifying this. So, let’s proceed!
Defining Installment Loans
To start with, when it comes to long term installment loans, you borrow a sum of money once – up front, and you make repayments according to a specific schedule. Auto loans and mortgages belong to this category. That being said, the lifespan of the loan can be either short or long, depending on your individual needs.
Steady Payments
In essence, we could argue that installment loans are straightforward. In other words, you pay the same amount of money every month, for instance. On the other side, credit card payments depend on several factors. To be more specific, you pay only if you’ve been using the card. What is more, the amount you pay depends on the sum of money you’ve spent.
Generally speaking, installment loans are fixed. Therefore, you won’t be surprised by any unpredictable changes that may come ahead. This makes it quite easy to plan your finances ahead, which is why many borrowers choose this form of financing.
On the other hand, variable loans are entirely different, in the sense that the interest rate is likely to change. Additionally, with every payment you make, you diminish the loan balance, while covering interest costs, as well.
Furthermore, installment loans aren’t too difficult to understand. That’s primarily because, once they are set up, few changes are due to occur, if any. Nonetheless, if you have the option of making extra payments – with an additional lump sum, for instance, you could diminish your payments with a recast (more about recast).
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Can Installment Loans Help You Improve Your Credit Rating?
A good thing about best installment loans is that they could be helpful if you’re struggling with bad credit. In fact, if you didn’t know until now, you should note that the right mix of distinct types of debt could really help you with your credit. That’s because being consistent in your repayments portrays you as a responsible borrower.
On the other hand, if you have the tendency to pay most of your expenses with credit cards, the odds are you’re paying too much. Nonetheless, this doesn’t mean you should apply for numerous loans, as doing so could harm your credit. Make sure you choose a source of financing only if the situation asks for it.
Taking It All in
It’s true that installment loans have become really popular with borrowers with poor credit. However, if the loan has a short lifespan, you might end up paying a lot of money in additional expenses and interest rates. In fact, installment loans that last less than a year could be as expensive as payday loans. Therefore, our advice to you would be to assess your situation in detail before you go for it.
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Late Payment Implications
It is highly recommended to contact the lender if late payment is expected or considered possible. In this case, late payment fees and charges may be implied. Federal and state regulations are determined for the cases of late payment and may vary from case to case. All the details concerning the procedures and costs associated with late payment are disclosed in loan agreement and should be reviewed prior to signing any related document.
Non-payment Implications
Financial and non-financial penalties may be implied in cases of non-payment or missed payment. Fees and other financial charges for late payment are to be disclosed in loan agreement. Additional actions related to non-payment, such as renewals, may be implied upon given consent. The terms of renewal are to be disclosed in each loan agreement individually. Additional charges and fees associated with renewal may be applied.
Debt collection practices and other related procedures may be performed. All the actions related to these practices are adjusted to Fair Debt Collection Practices Act regulations and other applicable federal and state laws in order to protect consumers from unfair lending and negative borrowing experience. The majority of lenders do not refer to outside collection agencies and attempt to collect the debt via in-house means.
Non-payment and late payment may have negative impact on the borrowers’ credit standing and downgrade their credit scores, as the lenders may report delinquency to credit bureaus, including but not limited to Equifax, Transunion, and Experian. In this case the results of non-payment and late payment may be recorded and remain in credit reports for the determined amount of time.