A long-term installment loan is when you've asked a financial institution for a large amount of cash that you must pay back in regularly monthly payments with interest. This money can be used for what you need it for or told the bank you needed it for. A majority of banks provide these kinds of loans; some banks will need collateral while others need just your promise not to default on the loan.
The great thing about long-term installment loans compared to credit cards is that they offer a lower interest on the money you borrow. Credit cards tend to have an interest rate of 13 percent or higher; some even surpassing 30 percent. However, the reality of the situation concerning installment loans is that borrowing money in this fashion isn’t right for every person.
An installment loan is money the bank gives you that you are required to pay back along with interest for a set amount of time (paying regularly). For instance, if you get a personal loan for $3,000 with an interest rate of 7.5 percent, you pay a little over $93 each month for 36 months. A majority of installment loans have an interest rate connected to them, which means you pay back the money you borrowed and a little extra too, depending on the interest. If you have a term rate of one year or more, the loan is typically considered a long-term installment loan.
If you need this kind of loan, you can reach out to your local bank or credit union. You can also do an Internet search for loan companies. However, if you apply for a loan through the Internet, make sure to do your homework. Many sites are only there to get your private information.
There are a number of factors that go into being approved for an installment loan including but not limited to:
Since installment loans tend to come with lower interest rates, they also have stricter standards than you’d see with credit cards. And, to get the best interest rate possible on the loan, your credit should also be the best it can be.
Make Bigger Purchases
If you need a new appliance or major purchase, you can get a long-term installment loan that will help you attain the item. A car loan is regarded as a long-term installment loan. They tend to offer better interest rates than a consolidation loan because it’s also collateral.
Most people ask for a long-term installment loan to consolidate their credit card debt at a reduced interest rate. This allows people to save money and handle their monthly budget better. Most people have more than one credit card with varying minimum payments and interest rates. With debt consolidation, you make just one payment each month to go toward that debt.
Reduce Your Principal Balance
Installment loans allow you to make payments that go toward the principal balance, not just the interest rate. If you pay the minimum on your card balance every month, you pay a minute amount of the principal and the rest interest. The credit cards want to make money, and this is their way of doing it. You’ll be making payments but feel like you’re not getting anywhere. An installment loan lets you see the progress you are making.
There is one problem with an installment loan if you use the money to pay off credit card debt, and it’s your own doing. If you don’t have any discipline in not using the credit cards, you’re going to find yourself with high credit card amounts and an installment loan to pay on. You’ll be in worse shape than you were before the loan came through.
However, you can keep this from happening to you by cutting up the credit cards or removing them from the wallet the moment the loan is approved.
Possible Prepayment Penalties
If you detest the idea of being stuck in debt for several years, then you shouldn’t get a long-term installment loan. It’s not uncommon for installment loans to come with prepayment penalties they charge if you pay the loan off early. Look over the paperwork and read the fine print before you sign a loan document.
Don’t Fit In The Monthly Budget
You shouldn’t get an installment loan if you can’t reasonably handle the monthly amount along with your other debt based on the income you currently have. Lenders suggest people don’t have monthly debts that surpass 36 percent of their income.
Be sure you look at the loan’s terms and rates. Banks will advertise low personal rate loans, but that doesn’t mean you’ll be qualified for them. Many borrowers unwittingly agree to the high-interest rate loans because they failed to read the numbers. Never borrow money until you read everything… and that includes the fine print.