Installment loans: even if this financial term doesn’t sound familiar, there’s a huge chance you’ve borrowed one before. Most personal loans (barring risky payday cash advances) fall under this category. But such a broad definition leaves a lot of details unsaid. Read on if you’re planning on borrowing soon — or you’re just looking for ways to improve your financial knowledge. Here are five things you need to know about this particular financial product installment loans.
1. It’s an Umbrella Term
The word “installment loan” covers a broad number of financial products. Mortgages, personal loans, auto loans, and student loans all fit under its scope.
On the surface, these financial products are vastly different from each other. You’d never qualify for a mortgage to pay off your tuition, after all.
Nevertheless, they all deserve the title because they share two main characteristics.
- You’ll receive your funds upfront in one fixed amount.
- You’ll be given a fixed schedule that outlines when you have to make regular, fixed payments.
2. They Have Short or Long Terms
You can splitthis financial product into another two categories: long- and short-term loans.
Long-term financial products tend to be defined by terms that last years, or even decades, like the average mortgage. Short-term financial products, on the other hand, may only last a few weeks or months.
Generally speaking, how long you have to repay depends on how much you borrow, with larger amounts taking longer terms.
3. They’re Available with Bad Credit
Borrowing money when you have bad credit may seem like it’s impossible. Many of the biggest banks weigh credit scores heavily when deciding to lend money, and they often disqualify borrowers if their scores are too low.
Luckily, not all financial institutions operate in the same fashion. A financial institution like MoneyKey, for example, may check your credit, but they weigh it against other financial information to determine your creditworthiness. If employment and pay details suggest you can afford to borrow money, you might be approved despite your low score.
4. Some Are for Emergencies Only
Some options help you make large, planned purchases, like buying a home or getting a college degree. However, installment loans for bad credit are cash advances designed to help you with unexpected emergency expenses you can’t cover on your own.
Knowing why you’re borrowing can help you search out the most suitable financial product for your needs—whether you’re planning to attend a school or scrambling to afford an unexpected auto repair.
5. Rates Rely on Your Location
You’re probably aware that many things factor into what interest rate you get when you borrow money. Your credit score, debt-to-income ratio, and even the kind of financial product you apply for can impact what you pay. But what you might not know is that your location joins this list of factors.
There are a couple of reasons why:
- Your local government controls lending laws that put caps on how high individual lenders can set their rates.
- You might live in a competitive market. If more financial institutions compete for your business, you may have more options when it comes to interest rates.
Remember These Facts Before You Borrow
Keep what you learned here today in mind the next time you borrow money. These facts about rates and credit can help you make a more informed choice the next time you need help.