If you’ve currently got a bad credit score, chances are it could be causing you to feel stressed. After all, access to credit is essential for when life throws those little niggling problems at you.
Picture the scene. It’s Monday afternoon, you’ve just finished work and need to pick the children up from school. However, your car mysteriously won’t start and you can’t afford to pay a mechanic on-the-spot to take a look at it – neither can you afford to arrange alternative transport. This nightmare scenario is just one of many that routinely affect people with a poor credit rating.
The solution might be to turn to a high cost payday lender to secure immediate funding – but with incredibly high repayments, this might not be ideal and could land you even further in debt than you already are. Thankfully, there are a number of alternative loans for bad credit that could help you out in this sort of situation.
Installment loans for bad credit: Helping you when you need it most
Forget about a product that requires you to pay it off, with interest, in one lump sum. Instead, consider an installment loan instead. These bad credit loans have several advantages over short-term funding solutions.
Installment loans for bad credit work in very much the same way as traditional personal loans. The only discernible difference is that bad credit loans typically carry a slightly higher interest rate. When you take out an installment loan, you’ll agree with your lender to repay over a term of anywhere between six months to three years, in a series of bite-sized, manageable payments, usually on a monthly or fortnightly schedule, depending on the loan amount, the duration of the loan and the conditions imposed by the lender.
This is a much more manageable way to repay your debts than payday loans and will ensure you don’t end up in the “vicious” cycle of taking out one payday loan to pay off another. Recent anecdotal surveys suggest that many Americans who fall into the debt trap end up taking out as many as 10 loans in a year in a constant game of cat-and-mouse to repay debtors on-time. This is where installment loans come in.
While interest rates on installment loans might be slightly higher than traditional personal loans, you should still be able to find an affordable deal that trumps the terms laid out by standard payday lenders.
How much could I borrow with an installment loan?
Another advantage of installment bad credit loans is that they generally allow those with poor credit scores to access greater sums of money than payday loans. Local state laws often place caps on payday loans of just a few hundred dollars, but installment loans are exempt from such legislation. Installment loans are certainly a better option if you urgently need to pay off bill greater than $500.
The financially stable option
Installment loans are what’s known as “amortizing” loans. With an amortizing loan, each regular repayment you make goes towards paying off both the principal and loan interest, which means that every payment takes you one step further towards getting out of debt.
By completing these regular repayments on time and in full, you’re also displaying to your creditors that you have the ability to meet your debts when required. This shows that you’re a responsible borrower, and will reflect as such on your credit score. With a bad credit installment loan, you could actually repair your credit rating and put yourself in a better position to access more affordable loans in the future. You could even find doors begin to open for more affordable mortgages or automobile financing.