Despite being a loan product created in the lines of payday loans with a focus on meeting the immediate financial needs of borrowers, installment loans are different from payday loans in certain aspects. The loan structure of installment loansis different from payday loans, and the payment methods are also different. Installment loans are for higher amounts between $500 and $5,000, whereas payday loans do not exceed $1,500.
Unlike payday loans, installment loans have longer terms with tenure of 6-48 months instead of the standard 2 weeks for payday loans. The third difference is that for repayment of payday loans, you must give access to your account to the lender, or you can write a check for the loan amount and deposit it with the lender for cashing it out when the payment falls due. But you pay every month for installment loans, which is why some people also call it instalment payday loans in Brampton.
Types of installment loans
All loans payable every month are installment loans, and car loans and home loans come under this category. But the installment loan available from lenders that offer payday loans is personal loans that are different not only in the amount which is much less than mortgage loans but also in the tenure that usually does not exceed 4 years. Installment loans that we are discussing in the article are of the latter type, which is a variant of payday loans, which are unsecured loans.
Installment loans carry a fixed rate of interest whereas, some mortgage loans come with a variable rate of interest, meaning that the interest keeps changing during the term of the loan. When the interest rate is fixed, borrowers pay a fixed amount every month, and it is easy to budget in advance to ensure that they do not miss any payment.
No down payment
For installment loans of bigger amount like car loans and home loans, lenders do not offer 100% financing, and borrowers must make some down payment to avail the loan. There is no down payment required for availing personal loans, and these loans do not require any collateral but approved based on the evaluation of borrowers done by lenders to assess their repayment capabilities. Naturally, the interest rates go up many more times and can be as high as 36%, depending on the creditworthiness of borrowers.
Build credit with installment loans
Usually, people take loans when they need money, but installment loans are also good means for building credits. Your credit rating depends on how well you manage debts, and by taking installment loans and making regular payments, you can improve your credit score. Regular payments augment your credit history, which is one of the most important factors that influence your credit score. Availing installment loans and paying as agreed and in full has a positive effect on your credit rating, but paying the loan early does not have any additional benefits. Sticking to the agreed payment terms is good enough to improve your credit score.
Besides meeting your immediate monetary needs, installment loans help to meet your bigger financial goals.