Securing a loan at all, let alone with a reasonable rate and repayment period, is almost impossible when you have a bad credit score. Banks and other financial institutions hesitate to lend money to a person who has an unimpressive credit history because the borrower is less likely to repay the loan, which results in the lender suffering losses related to non-repayment and collection efforts. Thankfully, some lenders believe that people who have had financial problems in the past deserve a second chance and offer installment loan options.
With a true installment loan, the borrower requests a certain amount of money that they need and use it in whatever way they choose, such as to pay for car repairs, a replacement vehicle, healthcare costs, moving expenses or even monthly bills between paychecks. Although other category-specific installment loans exist, such as auto, mortgage, and student loans, these loans require that a borrower meets strict application requirements and spends the money in a specific way. Installment loan lenders give borrowers with less-than-perfect credit histories a lot of options. Consider the following…
Your Credit Score Might Not Matter
A short-term installment loan lender typically ignores an applicant’s credit score. Instead, they look for other signs of financial stability, such as a bank account or a steady income. Some lenders don’t even check pay stubs and only care that you have a valid bank account in good standing. You might face a higher interest rate than seen with other types of loans. That said, given that other lenders typically decline applications from people who have shoddy credit histories, installment loan lender leniency and application approval more than offset higher interest rates.
You Can Improve Your Credit Standing
Installment loans offer you the opportunity to improve your current credit score and overall credit history. Lenders typically require that borrowers repay installment loans during a repayment period of three to six months or a year at most instead of over several years. This means that you don’t have to worry about a long repayment period that inevitably intersects with an emergency or another sudden event that interrupts your loan payments. As long as you make your payments before their due dates and pay off the loan by the end of the repayment period, you show financial institutions and credit bureaus that you’re responsible with money.
You Receive Rapid Approval and Funding
Installment loans usually don’t involve high dollar amounts. You might only receive approval for a couple of hundred or a thousand dollars. As a result, most installment loan lenders review and approve applications in under five minutes. If you’re approved for the loan, you typically don’t have to wait long to receive the funds either. In fact, a borrower who receives approval might see the funds deposited into their checking account that same day or the next business day. Rapid approval and funding guarantee that you have the funds you need when you need them.
Your Loan Interest Usually Doesn’t Increase
With most category-specific installment loans, a borrower must agree to a variable interest rate that changes to match inflation and events in the national or global marketplaces. With a true installment loan that doesn’t go by any other name, you typically never pay more than the regular payment amount that you and the lender agreed upon after you applied for the loan. The lender calculates this amount by dividing the total funds by the number of payments in the repayment period and then applying a fixed interest rate. A fixed rate is beneficial to borrowers who have low credit scores because they can set a budget that includes the known payment amount without any worry about variable higher interest increasing what they owe and causing them to fall short.