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Whether you’re new or old to personal finance, chances are you’ve come across the term installment loan. But – what is it exactly? An installment loan is a financing structure that provides the borrower with a lump sum upfront and the borrower repays the loan through regular payments or installments over time.
If you’re considering an installment loan, you should not only consider the product itself but the lender as well. To learn more about installment loans and how to choose the right lender for you, continue reading below.
What Is An Installment Loan In Canada?
An installment loan is any type of financing that is repaid with regular, continuous payments. A lump sum of money will be provided to the borrower upfront and the borrower will be responsible for making weekly, bi-weekly, or monthly payments. The term of an installment loan can range anywhere between six months to 35 years since a mortgage is technically an installment loan. But, more often than not, when we discuss installment loans, we’re talking about personal installment loans. The repayment term for these is much shorter, usually no more than five years.
Installment loans are typically used when a large sum of money is needed and the individual will need a long amount of time to repay it.
Types Of Installment Loans
Many types of loans are considered installment loans since it is such a common form of financing. Below are some common examples of installment loan types you’ll come across. Installment loans can be secured or unsecured.
- Car loans
- Personal loans
Cost Of An Installment Loan
The total cost of an installment loan depends on the lender and specific terms and conditions. You can find detailed information about the costs in the loan contract extended by the lender. The costs you should look out for include:
- Interest Rate. This is the percentage rate you’ll be charged for borrowing money.
- Annual Percentage Rate (APR). This is the percentage rate you’ll be charged for borrowing money expressed annually.
- Fees. Origination fees, early repayment penalties and late repayment fees are common, but there could be others too.
Is a personal installment loan better than a payday loan?
Pros And Cons Of An Installment Loan
Before proceeding with an installment loan, you should take a minute to consider the pros and cons to determine if the loan product aligns with your financial goals.
- Low Credit Scores Are Okay. So long as you’re able to demonstrate responsibility with debt repayment and the ability to make payments, low credit score ranges are okay.
- Quick Approval Times. Obtaining approval for other types of financing can take weeks. Installment loans have quick approval times because the application can be completed online. No in-person meetings are required with installment loans either.
- Comfortable Repayment. Payments are made on a scheduled date and the borrower has more control over the term’s length and payment frequency. This allows the borrower to select a repayment structure that suits their finances comfortably.
- Miscellaneous Fees. Sometimes borrowers can be surprised by hidden fees such as early repayment penalties or origination fees.
- High-Interest Rates. Because these loans are designed for individuals with poor credit, higher interest rates are the trade-off. In the lender’s eyes, this type of lending is riskier so they charge a higher interest rate to compensate.
Where Can You Get An Installment Loan?
Applying for an installment loan is the easy part. The hard part is sifting through different lenders and selecting one that will work for you and your finances. Do some research on installment loan lenders in your area. Once you find an optimal lender, you can apply online or at their branch, if they have one. Either way, once you’re approved you’ll have money in your hand within a day or two.
How To Find The Best Installment Loan Lender
With the explosion of private online lending, many lenders have entered the installment loan market. While having a choice is great, it can be difficult to sift through thousands of potential lenders. When researching installment loan lenders, consider the following factors:
- Assess Your Finances. Before shopping for installment loans and lenders, you should assess your finances. If you know what you want and need financially, it will be a lot easier to narrow down your options.
- Reputation. Read customer reviews, testimonials, and other information about the lender both on their website and on external sources. If many other consumers have had a positive experience with the lender, your chances of having a positive experience as well are higher.
- Communication. When you reach out to the lender, how do they respond? Are they quick and positive? Or are they passive and take their time? How a lender communicates with you is a good indicator of how they will behave if you proceed to work with them.
- Go Local. Even though there are installment loan lenders all over the world, your life will be a lot easier if you go local. If you want to review the contract or have issues down the road, it can be helpful to meet a representative in person. In addition, you can easily narrow down your options this way.
- Terms. Once you get more serious about potential lenders, you will eventually receive a loan contract. Be sure to review the terms to ensure that it is something that you’re comfortable with and can handle financially. If you want to modify something, reach out to the lender to determine if it is possible. If you can, reach out to a few lenders for comparison and negotiation purposes.
Is an installment loan better than a payday loan?
What do I need to qualify for an installment loan?
In addition to the above, you can expect that lenders will look at your credit history, employment status, and income to determine if you qualify for a loan. Installment loan lenders are quite flexible with credit scores. They will simply want to assess how you have repaid debt in the past
Can I get an installment loan with bad credit?
Is An Installment Loans Right For Me?
The best way to determine if an installment loan is right for you is to assess your current financial situation, your needs, and your goals. If you’re interested in in being matched with an installment loan lender, Loans Canada can help.
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