Questions You Should Ask Yourself before Taking out an Installment Loan

Navigating the loan marketplace can be a frustrating experience. You might require financing right away, but, due to your bad credit rating, this could be difficult for you to accomplish. Nevertheless, is there a solution to this commonly-met problem? Is there a loan option that would be more advantageous for you?

Introducing Installment Loans

Before we concentrate on the questions you should tackle before considering installment loans, you should understand how they work. It makes sense, doesn’t it? Expressly, an installment loan entails borrowing a given sum of money, and paying it back in installments, over a designated timeframe.

If you manage to make timely repayments, this will showcase you as a reliable borrower. To that end, we could say that installment loans can contribute to enhancing your credit. In general, the credit rating constitutes no less than 35 percent of the FICO score. This is why you should focus your attention on boosting your credit. Being a responsible borrower can contribute to this.

What Is the Repayment Period for Installment Loans?

As a rule of thumb, the repayment period for installment loans is long. More specifically, the loan might extend up to five years, or somewhere around that. Nonetheless, carry in mind that, the longer the lifespan of the loan, the more you’ll end up paying in interest and other costs. So, factor in this aspect before filing your application.

Do Installment Loans Include Prepayment Fees?

Considering that you have the financial means of making the repayments sooner than expected, will this entail additional penalties or fees? This is an important consideration that shouldn’t miss your focus. Depending on the lender, you might be charged with prepayment penalties if you intend to pay the loan earlier. That’s because this will diminish the amount of money you should have paid in the form of interest, which is in the disadvantage of the lender.

As a rule of thumb, though, prepayment fees are included if the size of the loan is considerable. To that end, prepayment penalties are, at the time being, much less common than they used to be in the past, which is, of course, a good thing.

Must I Provide Collateral?

In some cases, installment loans might be secured. But this isn’t the norm. However, you might still opt for a secured installment loan, if you have the possibility to do so, as secured loans usually come with lower, more convenient interest rates and terms. That’s because the inclusion of security diminishes the risk for the lender; therefore, making the terms more convenient for you.

In comparison with other short-term loans on the marketplace, installment loans are more convenient, as they aren’t as risky. Nevertheless, loans are hardly created equal – which is why we encourage you to consult different sources before making a decision in this respect. At the same time, it’s always sensible to factor in more alternatives, before making a financial decision that will imminently impact your future.

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