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There are many expenses in life that can require a lot more money than what you may currently have available. Whether it’s to pay for a car repair, complete a major renovation in your home, or pay for your children’s braces, sometimes a little financial help might be required. That’s why installment loans were developed: to help consumers in British Columbia get the money needed to cover a large expense.
Want to learn about some more loan types for credit users? Read this.
How Do Installment Loans Work in British Columbia?
Installment loans can vary based on the exact needs of the borrower. Basically, they involve any type of loan that is paid back in regularly scheduled payments or installments. Every payment on an installment loan includes a portion of the principal amount – which is the loan amount borrowed – as well as an interest portion based on the rate agreed upon. Usually, these payments are made on a monthly basis and are set amounts that are paid until the loan is paid off within the agreed-upon loan term.
Click here to find out what happens when you can’t make your loan payments.
The amount that must be repaid at every billing cycle will depend on the loan amount, interest rate, and the term of the loan. Just about all installment loans come with fixed interest rates, which means the interest rate charged will remain the same throughout the term. Therefore, the payment amount will also stay the same throughout the term of the loan.
Do Installment Loans Require a Credit Check in British Columbia?
A common question that consumers may have regarding installment loans in British Columbia is whether or not a credit check is required to get approved. While most installment loans do require a credit check in British Columbia, which means your credit score would have to be in relatively good shape in order to get approved, there are options for those with bad credit.
It’s always a good idea to check your credit score before applying for any type of loan in British Columbia. You can pull your credit report with any one of the two major credit bureaus in Canada, including Equifax and TransUnion. Knowing what your credit score is before you apply will give you a better idea of where you may stand in the approval process. It will also let you know if improvements should be made to your credit score before you apply for an installment loan.
If you know you have bad credit and need the money from an installment loan before you have a chance to improve your score, there are installment loan products available in British Columbia that are specifically geared towards bad credit borrowers. Further, a larger unsecured installment loan will usually require a higher credit score, so if you plan to borrow a large sum of money, you may want to take the time to boost your score first before applying.
Read this to discover some ways of improving or fixing your credit score.
Secured vs. Unsecured Installment Loans
Installment loans in British Columbia can be secured or unsecured. That means some loans may require some form of collateral – such as a house, car, or another valuable asset – while others don’t require any collateral to back up the loan.
Secured installment loans place less risk on the lender because they have something of value to recoup if the borrower defaults on the loan. Installment loans without collateral – or unsecured loans – pose a bit more of a risk to lenders because if the borrower defaults on the loan payments, there is nothing of value to recoup in order to cover their losses.
For this reason, installment loans that don’t require any collateral will usually require that the borrower has a higher credit score and a higher income. This will help show that the borrower will be capable of paying back the loan and making payments on a regular basis. In addition, unsecured installment loans may also come with a higher interest rate compared to secured loans.
Do you know what the true cost of borrowing is? Take a look at this infographic to find out.
Pros and Cons of Installment Loans
While installment loans can help consumers in British Columbia out of financial jams, deal with personal emergencies, or make large purchases, they can come with their own set of drawbacks too.
A quick and easy application process
Easily customized to the borrower’s needs
Allow borrowers to obtain financing at a lower interest rate compared to credit cards or payday loans.
A credit check may be required
Higher interest rate compared to the prevailing market rate
Borrowers are locked into a long-term financial responsibility
Before you choose to take out an installment loan, be sure to consider all the advantages and disadvantages of this financial product first.
How are installment loans different from payday loans?
Installment loans have much lower interest rates than payday loans. Typically, the maximum annual interest rate is 60% in Canada, but payday loans are allowed to have rates of 500-600% because of the shorter repayment terms of usually 2 to 8 weeks. Installment loans are more flexible since you can pay off your loan in smaller payments over a longer time period. Their significantly lower interest rates make them much more manageable than payday loans.
What’s the difference between secured and unsecured installment loans?
Secured installment loans have some form of collateral. The lender can keep it in the event that you cannot repay the loan. Unsecured installment loans have no collateral. If you have bad credit, you’re much less likely to qualify for unsecured loans. This is because the lender has limited recourse should you default on your debt. By offering a form of collateral, you are securing your loan and giving the lender confidence in extending credit to you. Typical forms of collateral include vehicles and home equity.
How are open-end and closed-end installment loans different?
In general, it’s much better to have an open-end installment loan than a closed-end installment loan. It could potentially save you hundreds of dollars in penalties. If you pay off a closed-end loan early, you may have to pay a significant prepayment penalty. In some cases, this means you save no money by paying your loan off early. An open-end installment loan has no such penalties and allows you to pay off your loan early to save on interest.
Get The Installment Loan You Need in British Columbia
Installment loans in British Columbia can certainly come in handy and fill a pressing need when a major financial obligation is thrown your way. These loans can be taken out in varying amounts depending on exactly what you need the money for. Be sure to check your credit score, consider your current finances, and contact Loans Canada today to find an installment loan that perfectly suits your situation.