Installment loans are growing in popularity because it is easy to get the loans without question asked. Anyone who wants quick money to meet some immediate financial requirement will find it very easy to avail a personal loan that borrowers can pay back in monthly installments, which is why people call it installment loans. Since borrowers must pay back a fixed sum of money on a fixed date every month, it becomes easy for them to plan their finances and ensure timely payment.
Including installment loan payments in monthly budget enables better cash management without the loan ever becoming a burden. For the sake of business growth by countering stiff competition, lenders that offer installment loans charge reasonable interest and maintain a transparent business relationship with customers that turn them into reliable entities. Monthly payments include principal repayment and interest component and spread out over the loan tenure.
Types Of Installment Loans
Installment loans are of two kinds – unsecured loans and secured loans. Unsecured loans are the most popular because it does not require pledging or depositing any security with the lender and the process of loan approval and disbursement is very fast.
On the other hand, some lenders offer loan against the deposit or ask for collateral security equivalent to the loan amount for approving the loan.
Unsecured loans are most attractive for borrowers because the risk is more on the part of the lender. Lenders are more comfortable with secured loans as they do not have to worry even if the borrower does not pay back the loan.
Although the interest on installment loans is reasonable, it can range from 6% to 36% depending on several factors. It can include the creditworthiness of borrowers, loan amount and the period of the loan. The interest rate varies mainly because of the credit rating of borrowers which means your personal credit score influences the interest rate.
Borrowers with high risk or poor credit score must pay higher interest as compared to those who are more reliable when availing unsecured loans.
Inability to make payment against unsecured loans might not have any impact on your assets or deposits that you must make for secured loans, but it harms your credit score that can be quite damaging for future borrowings.
Borrowing With A Poor Credit Score
Lenders do consider a credit score of borrowers of installment loans but do not prevent them from borrowing. It means that you get installment loans for people with bad credit. However, they must be ready to bear higher interest that lenders charge to cover the risk arising from lending to less reliable borrowers.
Usually, people in urgent need for money look for installment loans that are available immediately without any hassles and do not mind to pay high interest because they get the money when needed. That is not possible with any traditional loan that debars borrowers with poor credit score.
The assurance of providing timely funds to borrowers is the unique selling point of installment loans because borrowers are happy that they get the money when they need it most.