An installment loan is essentially a form of lending that involves taking out a fixed amount of money and repaying it over a set period of time in small increments, i.e., “installments.” These payments are usually meant to be made on a monthly basis, but they can also be scheduled to be collected on a weekly or even quarterly basis, depending on the loan.
You can typically apply for these loans via banks and credit unions or using an online installment loan service provider like USInstallmentLoans. In terms of how they work, these loans usually come with fixed-rate agreements, which means that the monthly repayment amount remains the same throughout the life of the loan.
This can often be a huge help to borrowers as they look to create and stick to a budget. However, it is important to keep in mind that failure to make your payments on time can result in facing late payment fees or, worse, being reported to the major credit bureaus.
This can negatively impact your credit score, thereby affecting your chances of securing funding in the future. You should also remember that, unlike a revolving line of credit, you cannot borrow any more money until you have repaid the initial loan.
What Do Lenders Look at When Evaluating Your Installment Loan Application?
When applying for an installment loan, it is always important that you put your best foot forward, but this can often be difficult to do if you are unsure of what the lender is looking for.
According to USInstallmentLoans co-founder Owen Wilcox, “Aside from your credit score, there are a number of factors that most online lenders look at that can significantly influence your chances of securing approval for an installment loan.”
In this respect, some of the main factors that you should keep an eye on include:
1. Your credit score
The first and most obvious thing that all lenders will look at is your current credit score, because this gives them insight into whether you are the type to default on a loan or not.
And while most lenders have their own standards when it comes to rating credit scores, those that start in the high 600s and continue above 700 are generally regarded as excellent.
However, this does not necessarily mean that you cannot secure an installment loan with bad credit. In most cases, most online lenders will offer low interest rates to those with a good credit score. Meanwhile, those with a low credit score will usually have to settle for higher interest rates, which is often due to the increased level of risk to the lender.
2. Your level of income and employment status
Some online lenders, such as those in the USInstallmentLoans network, are usually open to accepting loan requests, even if you have a less-than-stellar credit history. This is because most lenders will look beyond your creditworthiness and also assess your level of affordability.
This means reviewing your current employment status and level of income to determine your financial ability to pay back what you have borrowed. This means that the longer you have worked for an established company and the higher your income level, the more likely you are to secure loan approval.
Meanwhile, those who only work part-time or are self-employed may struggle to gain the confidence of the lender, which means having to settle for lower loan amounts and higher interest rates.
3. Your debt-to-income ratio
Another aspect that lenders look at is your debt-to-income ratio, which is essentially the percentage of all your monthly debt obligations divided by your monthly income. In most cases, lenders prefer that your debt payments not take up more than 43% of your income.
However, that doesn’t necessarily mean that you cannot access a loan when your ratio is over that limit, especially if your high-income level is high and your credit score is good. In this respect, you should work to pay down your existing debt before applying for a loan via USInstallmentLoans to increase your chances of approval.
4. Your collateral’s level of value
While it is not that common, some lenders may require you to put up collateral to secure your installment loan. These types of loans usually come with lower interest rates than unsecured ones because they minimize the level of risk to the lender should you fail to make your repayments. This could be your car with an auto loan or even your house with a mortgage.
Furthermore, the value of your collateral often plays a huge role in how much you are able to borrow. For example, when you purchase a home, you are not able to access funding that exceeds the current value of the property. This is due to the fact that the bank requires assurance that it can recoup all of its money if you end up defaulting.
How does applying for an installment loan work?
There are multiple places that you can go to apply for an installment loan, but the easiest and most convenient way is to do it online from the comfort of your own home. In this respect, here are the main steps that you need to follow to access funding today:
- Find a lender: The first step to applying for an installment loan is finding the right lender to borrow from. However, this can often be difficult with so many to choose from online, so it helps to head over to a credit broker site like USInstallmentLoans to speed up the process.
- Fill in your information: Once you are on the site, you can fill in the pre-approval form, which should only take a few minutes to complete. You will typically need to share your personal and financial information such as your name, address, banking details, income level, credit details, etc.
- Compare loan offers: After submitting the form, your loan request will be reviewed based on the information you provided. If approved, you can expect to receive multiple loan offers that you can compare to find the one with the rates and terms that best fit your budget and requirements.
- Await your funds: Once you have found the ideal offer, you can e-sign the loan agreement and wait for the lender to process your installment loan. In most cases, this will be handled as soon as the next business day, so you won’t have to wait long to access your funds.
Positives & Negatives of Borrowing An Installment Loan
Much like any other form of credit, installment loans have advantages and disadvantages. So, even if you do qualify for funding, it is always crucial that you take these aspects into consideration before you decide to sign the loan agreement.
- Pro: Offers a predictable payment plan that simplifies budget planning
- Con: Installment loans lack flexibility, as you cannot borrow more money until the initial loan is fully repaid. This means that you must be completely confident of precisely how much you need before you sign any loan agreement.
- Pro: Installment loans offer full transparency into the life of the loan, which gives you peace of mind in knowing that your debt has a visible endpoint.
- Con: An installment loan’s interest rates will often be based in part on your credit score, which means that those with a poor score will either fail to get approved or be forced to settle for high-interest rates that can be difficult to repay.
- Pro: Installment loans make it easy to afford large purchases, as the repayments are split into smaller and more affordable increments.
- Con: Some lenders may charge additional fees on your loan that can be extremely high such as origination fees, prepayment penalties, late payment penalties, etc.