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Installment Loans For Bad Credit
Have you found yourself in a financial bind? Whether your car broke down, you had an unexpected income drop, or something else — an installment loan may be able to help. But can you get approved despite having bad credit?
While bad credit can make it harder to get approved for an installment loan, many lenders cater to borrowers with credit challenges. If you have a steady source of verifiable income, you may still qualify. Here’s a look at all you need to know about installment loans including how they work, the easiest ones to get, and much more.
What is an installment loan?
An installment loan is a type of loan that a lender issues as a lump sum payment. The borrower then repays it, plus interest and fees, over a set term through a series of installment payments. For example, if you take out a $5,000 loan with an annual percentage rate (APR) of 20% and repay it over 36 monthly payments, that’s considered an installment loan. While personal loans, auto loans, and mortgages are all considered installment loans, we’re focusing on personal unsecured loans in this article. They often range from $0 to $35,000 and come with repayment terms of up to 60 months.
How do installment loans work?
Installment loans provide you with your desired loan amount upfront. Upon approval, the lender sends the funds to you, often via a direct deposit to your bank account. Once you have the money, you can use it as you please and your loan term will begin.
Note: While loans can often be used for the expenses a borrower chooses, there are a few common restrictions. For example, lenders often don’t allow borrowers to use the funds for gambling, student loan repayments, or illegal activities.
After you receive the loan funds, lenders require you to make installment payments throughout your loan term according to the frequency outlined in your loan contract. For example, payments may be due monthly or bi-monthly. The payment amount will be based on your loan amount, assigned APR, and any fees the lender charges. For example, continuing with the example above — a $5,000 loan with a 20% APR and a loan term of three years would cost $6,689.45. If you divide the total by the months in the loan term, you get a monthly payment amount of $185.82.
- Loan amount: $5,000
- APR: 20%
- Loan term: 36 months
- Payment frequency: Monthly
- Total interest: $1,689.45
- Total repayment amount: $6,689.45
- Monthly payment: $185.82
As long as you make each of your scheduled payments on time, you’ll pay off your loan within the assigned loan term at the agreed-upon cost. However, if you miss payments, you can incur extra fees and other undesirable consequences (more on that below).
How do I qualify for instant approval on an installment loan?
The requirements you need to meet to get approved for an installment loan vary from one lender to the next. However, the common eligibility requirements include:
- Legal age: You must be of legal age in your state, which is often 18 years old.
- Location: To issue loans to borrowers in a state, lenders must be licensed in that state. Being so, you’ll need to reside in a state that a lender serves.
- Contact methods: Many lenders require that you have an active email address and phone number.
- Citizenship: Borrowers must typically be U.S. citizens to borrow from U.S.-based lenders.
- Bank account: You must have an open and active bank account that can receive direct deposits.
- Steady income: A verifiable source of steady income is required, such as income from employment, a business you own, or a pension.
- Credit score: Lenders will often check your credit scores from one or more of the consumer credit bureaus. They may require that you have a score above a certain number (e.g. at least a 580 FICO score).
- Credit reports: Lenders will review your credit reports to see your payment history, credit utilization, public records, and more. They may deny borrowers who have certain public records (like a bankruptcy), a credit utilization percentage that’s too high, or too many derogatory marks.
While many lenders use the above eligibility requirements, different lenders cater to borrowers in varying financial situations. For example, some offer smaller loan amounts with higher costs to borrowers with poor-to-fair credit. Others offer larger loans with lower costs to borrowers with excellent credit. And some cater to borrowers in between. It can be helpful to figure out your monthly and annual income, credit scores, and the state of your credit report before looking for a lender. Then, you can find the best lenders for your situation and avoid unnecessary denials.
Beyond the eligibility requirements, to get instantly approved, you’ll need to find a lender that offers an online application with same-day approvals. Luckily, that’s not too hard as many companies have implemented quick online prequalification and approval processes.
Can I pay off my loan early?
You can typically pay off an installment loan early and doing so may reduce your borrowing costs. That said, some lenders charge prepayment penalties so they don’t miss out on their interest earnings. Prepayment penalties may take the following forms:
- A flat fee amount: A flat amount, such as $500, that’s charged if you pay off your loan balance early. The same amount may apply no matter when you pay off your balance, or it may be a tiered fee that decreases as you get closer to the end of the loan term.
- A percentage of the remaining balance: Lenders may calculate a prepayment penalty based on a percentage of the loan amount that you’re paying off early. For example, if you’re paying off a $2,000 balance and the prepayment fee is 2%, you’d owe $40.
- A period of interest: Lenders may calculate your fee based on a specific period of interest. For example, if you have 12 months left in your term, they may charge you half of the remaining interest; six months’ worth.
- The full interest amount: In some cases, lenders may add the borrowing costs to your principal balance so that you owe the entire amount no matter when you pay it off.
When shopping around for installment loans and comparing quotes, it’s wise to check if a lender charges prepayment penaltie — just in case you decide to pay your balance off early. The best loans allow you to pay off the balance at any time and save on all of the interest expenses that would’ve been charged after the payoff date.
What happens if I default on an installment loan?
If you don’t keep up on your installment loan payments and your account ends up going into default, the lender will cancel your repayment plan and the full amount will become due. At that point, you can’t go back and continue to make payments according to the previous terms. Once the full amount is due, the lender may:
- Have an internal collections team attempt to collect the full amount from you.
- Try to set up a new payment arrangement that will work for you.
- Sell the debt to a third-party collection agency that will begin trying to collect the amount from you.
- Sue you to try and collect the debt through a court order. Court orders may result in the lender gaining the ability to seize your assets or garnish your wages to recover the amount.
No matter which steps the lender takes, it typically results in aggressive action and frequent collection attempts via letters and phone calls. Further, lenders report missed payments and loan defaults to the consumer credit bureaus. Both will show up as negative marks on your credit reports which will cause your credit scores to drop.
When third parties check a borrower’s credit reports in the seven years following a default, they will be able to see the number of payments that were missed and the loan amount that went unpaid. If you do end up paying off the balance, the loan will show as paid on your credit report, but the negative marks will remain.
If you’re ever falling behind on payments, it’s best to contact the lender right away to try to work out an agreement and avoid a default. They may be willing to defer a payment to the end of your term, rework your payment amount, or something else.
What is the easiest installment loan to get?
Many installment loans are easy to get. You can apply online and have the funds as soon as the next business day. However, it won’t be quite so easy if you don’t meet a lender’s eligibility requirements. For example, if a lender requires a credit score of at least 620 and you have a 580, your application will likely get denied.
To improve your odds, you can check your credit score and income and then shop around to find lenders with suitable eligibility requirements. However, that can take quite a bit of time and effort. If you want to speed up the process, fill out our form here at paydayloans.com. We’ll then check with our network of installment loan lenders, find those that are a fit, and send their offers to you.
Advantages of Online Installment Loans
Why get an installment loan online? Well, they offer a variety of benefits, including:
- Convenience: You can apply online from the comfort of your home. No need to drive to the bank or another lender’s office.
- Speed: Lenders may fund your loan as soon as the next business day.
- Longer terms: Installment loans often come with terms of a year or more, which makes it easier to fit loan repayments into your budget.
- Lower costs: Installment loans often come with lower interest rates and fees than shorter-term loans, making them more affordable.
- Build credit: Unlike credit cards, installment loans won’t count against your credit utilization. Additionally, if you pay the loans as agreed, they can help to increase your credit score.
Overall, online installment loans offer a convenient way to borrow a lump sum and repay it according to terms that can fit into your budget.
Steps to Getting a Personal Installment Loan Online
Does a personal installment loan sound like the right fit for you? Here are the steps to getting one online.
1. Financial Check-in
Before doing anything else, you’ll want to check in on your financial situation. Figure out the loan amount you need. For example, if you have multiple medical bills that you want to pay off, add up all the balances to get the total amount owed.
Next, look at your monthly income and expenses. After subtracting your monthly costs from your income, how much is left? That amount can help you decide on the loan repayment amount that you can comfortably afford.
From there, it can help to check your credit reports to see what lenders will find when you apply. Look them over to ensure all of the information is correct. If it’s not, you can file a dispute with the credit bureau and request to get it fixed. If you have a negative mark, you can also contact the creditor to try to work out an agreement.
Additionally, check your credit scores. While the scores aren’t included in the free credit reports mentioned above, you can get them online from a variety of companies. For example, if you sign up for the Experian Creditworks Premium seven-day free trial, you’ll immediately gain access to your scores from Experian, Transunion, and Equifax. Once you see them, you can downgrade to the free membership or cancel to avoid being charged $24.99 per month.
2. Get Quotes
With a solid grasp on the loan amount you need, the repayment amount you can afford, and where your credit stands, it’s time to get some quotes. But from where? You’ll want to look for reputable lenders that offer installment loans in the amount you need and have eligibility requirements that suit your situation.
You can use a search engine to find lenders and review their offerings and requirements manually. However, that can take a lot of time and effort. A faster route is to let a company like us do hard work for you. Simply fill out our online form and we’ll check with our network of reputable lenders to find those that suit your situation and needs. Within a few minutes, you can prequalify with various lenders and receive a list of quotes.
3. Compare Loan Offers
Once you have received installment loan offers, compare them side-by-side. The main factors to consider, include:
- Loan amount: Lenders may offer you varying loan amounts. Compare the offers to see which suits your needs, or if one offers an advantage like a higher loan amount option.
- Interest rate: Check the interest rates being offered and look for the lowest rate. Higher interest rates will mean higher borrowing costs per year.
- Fees: Lenders may charge fees on top of interest, such as an origination or application fee. Be sure to factor any fees into your borrowing costs.
- Funding time: Look at how long it’ll take the lender to send the funds to you. If you’re in a hurry, a lender with a faster funding time may be more appealing.
- Loan repayment term: Compare the loan repayment terms being offered. Longer terms will lower your monthly payment amounts but can increase your total borrowing costs.
- Monthly payment amount: Consider the different monthly payment amounts and which one best suits your situation. A higher loan amount can mean paying off the balance quicker and saving on interest. But lower amounts might be a better fit for your budget.
- Total loan cost: Don’t forget to check the total loan costs. Lower monthly payments don’t always mean a lower overall cost. Add up the loan amounts, interest charges, and fees over the entire loan term to compare the total loan costs.
- Prepayment penalties: If you end up paying off the loan early, you’ll want to save on the borrowing fees so check if any of the lenders charge prepayment penalties. If they do, note the penalty structure and amount.
- Hardship programs: Some lenders are more supportive and flexible than others when borrowers can’t make their payments. Research the lender’s FAQ sections to find out what they recommend if you’re having trouble making a payment. Look for hardship programs or those who sound like they’ll work with you.
- Customer satisfaction ratings: Read the reviews from a lender’s past borrowers on sites like Trustpilot to learn about any common issues.
- Account management/payment options: Check on how you’ll be able to manage and pay your account. Can you log in to the website? Is there a mobile app? Can you pay via credit card, debit card, and bank account? All of these details can impact your borrowing experience.
After considering all of the above factors, look for the lender that offers the best overall solution. If you can’t find the information you need online, you can always call a lender to get more details.
4. Move Forward With the Best Option
Once you’ve found the best lender and loan for your situation, select the offer and follow the directions to officially apply. The final application process will often involve a hard credit inquiry and providing documents such as pay stubs, tax returns, proof of address, proof of employment, and a government-issued form of identification.
Upon approval, you’ll sign the contract and the lender will send the funds to your bank account. The loan repayment term will then start and you’ll be required to make payments according to the loan contract.
Alternatives to Installment Loans
What if an installment loan isn’t the right fit for you? You have other options. If you’re having trouble getting approved, you may have better luck with a payday loan, secured loan, or credit card cash advance.
- Payday loans: Payday loans often come with shorter terms and higher costs, but more lenient eligibility requirements. As the name suggests, they often must be repaid on your next payday, within two to four weeks.
- Secured loans: Secured loans are installment loans backed by collateral like a vehicle or other item of value. If you don’t repay the loan as agreed, the lender can seize your collateral and sell it to recover their costs. As a result, they face less risk and can approve more borrowers.
- Credit card cash advance: If you have a credit card with available credit, you can also consider pulling out a cash advance from an ATM. They often come with cash advance fees and elevated APRs but offer fast cash and flexible repayment options.
All loan options have pros and cons you have to weigh to find the best fit for your situation. However, the most important factor to consider is if the repayments will fit into your budget. If a loan will resolve your immediate financial need but create greater hardships in the future, it’s often best to avoid it. Longer repayment periods can result in higher interest costs but often offer realistic repayment plans that borrowers can fulfill.
Want to see which lenders will prequalify you for an installment loan? Find out within a few minutes without hurting your credit score.