Are Installment Loans Better For People With Bad Credit?
Something amazing happened in 2017, and no one is talking about it. The average FICO credits score hit 700 in 2017, and that means people are getting smarter about the way they approach their credit. They are starting to budget their money in such a way that builds credit instead of just saving and buying. These practices are helping people plan and build credit through proper lending practices.
So how do you get into the green and push that credit score above the 700 average? You do it by doing what we just said, planning and paying back your debt. So, what kind of loan can you get if you don’t really have the best credit, but you want to build it? Why not look into an installment loan?
What exactly is an installment loan?
To keep it simple, an installment loan gives you a lot of money up-front to buy something in return for monthly payments. These loans are generally pretty long, but their payment terms vary depending on their use.
An auto loan might have a payment period of 3-5 years, but a personal loan’s payment period could be shorter. Even a mortgage payment is a type of installment loan, and those can have payment periods anywhere from 15 to 30 years.
Installment loans are really designed for those who have a bit of room in their budget to spend on upgrading their lifestyle. Think about that mortgage loan. If you have a steady job and you want to make a home base, you could get an installment loan for a house. The lender pays the upfront cost of the home, and you repay that lender with monthly payments and interest.
Can people with bad credit get installment loans?
It is possible for people with bad credit to get installment loans for cars, especially if they can prove it’s their means of getting to work to get paid. There are lenders that specialize in bad credit installment loans and may not require a minimum credit score to secure a loan. You will need to go through the application process to understand your options.
What people with bad credit need to keep in mind about installment loans
The biggest thing that people with bad credit need to keep in mind is the installment payments. If they don’t budget their money correctly, they won’t be ready to make the monthly payments. They should also keep in mind that the advertised price might not be the monthly price they end up on. Since your credit score can affect your interest rate, it can affect the overall payment each month. So if you have bad credit going into an installment loan, you need to be ready for that extra monthly cost.
Another thing that people with bad credit need to keep in mind is they can use these to pay for unexpected issues that arise in life. If you are using these types of loans to pay off other expenses, you really need to pay it off. Having the ability to pay for that now is great, but if you let it go too long, it’s going to cost you way more than it was worth, especially if you aren’t actively paying it off. If you don’t meet your minimums, you will ultimately end up owing way more.
When Installment Loans make sense
An installment loan could make sense when you have an emergency expense you don’t have enough savings to cover. If you take this mindset into each loan and set up reasonable repayment terms, an installment loan could help you get through a tough situation.
If you’re thinking about an installment loan for a home think about this. If you are renting a place for $950 a month, you could replace that monthly cost with a mortgage payment on a home. The average monthly cost of a mortgage payment on a $150k house is about the same. That means you can buy and own a house instead of renting from someone else. That type of ownership can help you build assets and credit, and that’s something renting can’t do.