A loan is a versatile tool that can help you in many situations, especially in Edmonton, where the cost of living can be substantial. That said, before you apply for a loan of any kind, it’s best if you’re aware of how much you’ll be paying for it over time.
That won’t be a problem if you find the right installment loan, as your upcoming repayment plan can often be adjusted to suit your financial needs. Interested to know more? If so, keep reading, because we have some information for you.
Installment Loan or Payday Loan: Which is Better?
There are many different loan types available through several kinds of lending sources. However, not all loans or lenders are right for everyone’s particular financial situation. So, it’s essential to do research and compare loan products before you attempt to apply.
Two of the most commonly seen loans in Edmonton are the installment loan and the payday loan. Although both can be helpful under the appropriate circumstances, they can also be totally wrong for your case, so let’s discuss a few instances where either option would be appropriate or not.
Learn how to compare lenders in Canada, here.
Installment loans are slightly more common, in that most lenders offer them in some respect. While banks and other prime lenders can provide you with a bigger installment loan, often with better terms, it might be easier to acquire a smaller loan through a subprime lender, where approval standards are more forgiving.
The said the overall idea of an installment loan is the same no matter where you apply, meaning you’ll receive a lump sum of money soon after you’re approved, then repay it through equally timed and divided payments. Installment plans can last several months to several years, depending on the conditions and size of your loan. Some lenders will even allow extra payments during your plan so you can get out of debt faster.
An installment loan may be much larger and come with a lower interest rate than the average payday loan. Which can make it better for situations where your expenses are greater and/or need to be financed over time, for example:
- New furniture or appliances
- Home renovations or repairs
- Vehicle repairs or maintenance
- Consolidation of unpaid debts
- Tuition or other educational costs
Payday loans must be acquired through select lenders and will come in relatively small amounts of $100 – $1,500. Approval standards are much easier to meet than with installment loans. All you need is a steady job, a bank account, and a local address. Once approved, you should receive the money within 24 hours, which is faster than with most installment loans.
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The real problem is that payday loans need to be paid off all at once, with the funds being automatically withdrawn from your account 14 days after they’ve been deposited. As such, they are not a good option if you don’t have enough saved up to cover all the costs involved, which can include hefty fees and some of the highest interest rates of any credit product. Being unable to afford these costs can result in a severe cycle of debt, so you must be careful.
Nonetheless, payday loans are easy and quick to get approved for, making them a viable option if you have low borrowing power or an emergency on your hands, for example:
- Rejection by traditional lenders due to bad credit or a low income
- Lack of rent, groceries, or other necessities
- Injuries or other medical emergencies
Take a look at this infographic for more information about the payday loan cycle.
Installment Plans: How Often Can I Pay?
If you’ve decided on an installment loan, don’t forget that how often you make payments can make a huge impact on your financial well being. While all lenders offer different conditions for their installment loans, most will allow you to modify your payments before and during your plan (with some negotiation).
Most lenders offer plans that are:
- Weekly (52 installments/year)
- Bi-weekly (26 installments/year)
- Monthly (12 installments/year)
- Semi-monthly (24 installments/year)
- Accelerated/lump installments
Any good lender should tell you how much each installment would cost you overall, including fees and interest. If you factor those costs into your budget and it looks like you wouldn’t be able to afford them in the near future, consider adjusting your payment frequency or seeking another solution entirely. That said, the more qualified you are as a borrower, the more lenient lenders will be when it comes to your installment plan.
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Installment Loan Application: What Do I Need for Approval?
When applying for an installment loan, gaining approval is all about your financial aptitude. The healthier your finances are, the less risky lenders will consider you, the more money you can be approved for, and the lower your interest rate will be.
Then again, remember that different lenders have different standards for which borrowers they can approve.
For instance, banks and other prime lenders often have tougher qualifications to meet. So, if your income or credit score falls below their minimum threshold, or if you have a bunch of unpaid debt, they may decide you’re too risky.
If you don’t qualify there, a subprime source, such as a private or bad credit lender is likely to have easier standards, wherein your income and employment history may be the most important factors. Either way, your overall approval odds will mainly hinge on your ability to complete your installments on time.
For the best approval odds and interest rates all around, it’s best to have certain elements in place when you apply, such as:
- A steady source of employment
- A good monthly/yearly income
- A low amount of unpaid debt (none would be better)
- A credit score of 650 – 900
- Recent bank statements or other proof of income
- Some loan security
Collateral and Cosigners
While offering loan security is optional, it can be helpful if you don’t have amazing financial strength or if you want to obtain a larger loan at a more affordable rate. Security can be provided in two different ways.
The first way is known as securing your loan, which happens when you offer up an asset to be used as collateral. This could be your vehicle, house, or another piece of valuable property. The better your collateral is, the better the results. However, this comes with a big risk, as your asset may be seized to compensate the lender if you default on your loan.
If you don’t want to endanger your assets or you don’t have any to offer, you can also get a stronger borrower to cosign your loan application. Then again, this also presents some risk, as your cosigner would become responsible for your installments if you cannot make them. If they too default, both of your financial profiles would be damaged, so consider this carefully before you attempt a cosigned loan.
Want to know what types of lenders accept co-signers? Find out here.
Bad Credit Installment Loans: How Can I Get One?
If your credit score falls below the 600 mark, it typically means you have bad credit, which may be due to any number of causes. Regardless, many lenders will not approve your loan applications because there is an increased risk that you’ll default on your upcoming installments.
Another thing to consider is the fact that, if you do manage to get approved, it will usually be by a subprime lender for a smaller loan amount with a higher interest rate, making it more expensive than a loan with good credit would be. Nevertheless, approval is possible, as long as you can beef up your application a bit so that you’re considered as creditworthy as possible.
Did you know that bad can affect your daily life? Learn more here.
If you have bad credit, try the following tactics:
- Lower your debt-to-income ratio as much as you can
- Find a better job if your income isn’t sufficient
- Apply for a guarantor loan (cosigned loan)
- Provide some good collateral
- Apply for a loan that doesn’t involve a credit check
- Use a secured credit card to make responsible payments
All this said, while a bad credit installment loan can cost you more in the long run, you can also use it to improve your credit score by making payments on time and in full. That’s right, as long as your lender reports your activity to Canada’s credit bureaus
(Equifax and TransUnion), every complete installment will bring you closer to more traditional (and less expensive) credit products in the future.
For more helpful tips on how to improve your credit, check this out.
Loans Canada, Your Guide to Installment Loans
If you’re searching for an installment loan in Edmonton, you’ve come to the right source. At Loans Canada, we take pride in finding the best loan products, lenders, and rates in your area. Contact us today if you’d like more information or apply below if you’re ready to start your quest!