How Does An Installment Loan Work?
Do you know what an installment loan is? Do you know how many payments to expect with a direct installment loan and what the average annual percentage rate will be? Or what type of credit score it takes to get approval for an online loan. Don’t stress if you don’t know the answers to all those questions! These are common questions that we’re asked by visitors to this site. Let’s get right into it and answer these questions so you can get back on track and compare the top installment loans!
The types of direct installment loans listed on the sites above have been around for years. With an installment loan, the borrower agrees to pay back a set amount of money over a period of payments. These payments can last for months or even years. This type of financing structure is different from a payday loan or cash advance. Reason being, a short term loan is generally paid back in weeks or even days. With a direct installment loan, a borrower can expect 6 payments, 12 payments and sometimes even up to 60 payments for a loan term. It all depends on the lending terms between the loan provider and borrower.
You may have a few questions about this type of borrowing. For example, why would anyone agree to make payments over a period of months instead of a few weeks with a typical online loan? The difference is that installment loans are for higher amounts than traditional short-term lenders. Most installment loan amounts start at $500 and go all the way up to $50,000+. It depends on what an individual company is willing to lend. Some states have laws in place that limit the set minimums and maximums when it comes to the amount you can borrow. In California, a direct installment lender will often set a minimum loan amount of around $2,500. Most companies do this to adhere to California finance lender regulations. Many states have specific limits to protect consumers from aggressive personal loan companies. Be sure and check with your state before you sign a contract with a personal loan lender.
Most companies in our direct lender comparison tool will offer some form of an installment loan. With that, there are still different variations of what most people consider an installment loan. Take the traditional personal loan for example. Some companies that provide personal loans market these offers as payday loans and cash advances. With this form of borrowing the loan amount is paid off over a much shorter period of installments. Secured loans are another example where you pay back the amount borrowed over a period of multiple installment loans. With a traditonal mortgage loan a house or property is securing the collateral. The amount owed to the mortgage lender is paid back over a matter of years, typically around 20-30. A secured vehicle loan is no different. A borrower takes out a loan to purchase a vehicle and pays back the full amount in installments over a period of 1-5 years.
You will notice a few differences with a direct lender installment loan versus payday loans. For instance, those with a good credit score will see a higher approval rate and better repayment terms. We all know that many qualify for a payday advance regardless of their credit score. With this type of short term loan, an applicant should expect a high APR in exchange for the opportunity to borrow money. Most people who apply for these types of loans have poor credit and don’t have many other lending options to choose from. Banks are often reluctant to extend credit to someone who has bad credit. Additionally, most short term lenders won’t even check an applicant’s credit score. If you have verifiable employment, direct deposit and no past bankruptcies you should have no problem getting a direct installment loan.
A direct lender may want to run credit to see if there are any other personal loans or serious credit delinquencies. Direct installment loan companies don’t require excellent credit, but that doesn’t mean they won’t look at someone’s financial or bank history. Most companies that offer online installment loans have internal qualification standards. They provide terms and conditions which you need to follow. These are in place to determine if an applicant is creditworthy. It all depends on the process of each individual firm.
We try our best to break down each company that offers direct lender installment loans. We also include specific information that we know about some installment lenders. Some bits of information that we list includes common lending questions. For example, how long has that short term finance lender been in business? What to expect with the application process, loan term agreement and monthly payment schedule? Does the direct lender offer bad credit loans and work with borrowers who need to improve their credit? If so, what type of interest rate can you expect with poor credit? These are helpful bits of information to use when picking a direct installment lender. You also want to know if they send money straight to your bank account after a loan approval.
The most important thing you need to know is if a specific online installment lender is able to fund direct loans in your state. This may not seem important, but believe us there is no way to get a loan from an unlicensed company in your state. Short term loans and cash advances should only be a last resort. Be sure this type of financing is for short term financial needs only. It’s critical that all borrowers pay back their direct lender installment loan within the allotted time to avoid fees and extra interest charges.