What Are Online Installment Loans and Should You Get One?

The terminology of online loans can be confusing. What's the difference between an installment loan and a personal loan? What does the term "unsecured" mean? The distinctions are simpler than you might think. Many of them describe the same product.

For instance, the term "installment loan" refers to any loan that you pay off in recurring installments. Online personal loans, which are unsecured, generally fall into this category. Auto loans and mortgages are also installment loans.  

How to Shop Online for an Installment Loan

When looking for online installment loans, you should start with a general survey of your options. First, understand your credit score and what loans you might qualify for. Then, compare some of the lenders that may work with you — initially, you may want to focus more on fees and repayment terms rather than strictly finding the lowest interest rate, as interest rates can vary based on your creditworthiness.

If you don't see favorable terms and conditions, try another lending site. Try to find one that's a direct lender, so you don't just get the same offers you did the first time around. You could also contact your local lender, bank or credit union to compare rates.

Good Times and Bad Times to Take Out a Loan

Taking out a personal installment loan to build credit is a solid idea. Folks who are just starting out often do this to increase their credit score and have some credit history on their credit report. If that's your motivation, go for it.

If you need an installment loan to make a major purchase, like a car or home, try to do it when interest rates are low. Borrowers without exceptional credit may still pay high rates, but you could go back and refinance in a year to get a better rate. That's one of the benefits of installment loans.

Other folks take out a loan to pay off old loans or credit cards. This is called a consolidation loan. The object of it is to lower interest rates and stretch out debt payments over a longer period, thus bringing down the total monthly payments you have to put out.

Benefits of Consolidation Loans

Consolidation loans are a great move to eliminate high interest credit card debt, but only if you stop using your credit cards after you do it. Unfortunately, many people who take out installment loans to pay credit cards end up running those credit card balances up again.

Think of debt as a single number. A consolidation loan should bring that number down. If you add up principal and interest payments over the life of the loan and compare that to minimum monthly payments on credit cards until they're paid off, you can save a significant amount.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances. 

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: Financial Solutions, Loans, Online Loans, Personal Finance