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What is an Installment Loan?
An installment loan is a consumer loan with fixed monthly payments that is a responsible alternative to predatory loans like payday loans and title loans.
Interest rates for installment short-term loans are higher than those found on traditional loans, like mortgages, or lines of credit, though still lower than payday loans, which tend to be their most popular financing alternative. As with any loan, rates are determined by risk, and thus all kinds of factors bear on its eventual calculation, including the applicant’s credit score/history and income, the desired size and duration of the loan, and whether or not the loan is secured (backed by collateral).
It’s hard to say what kind of interest rate you might receive when applying for a short-term installment loan, as so many factors come to bear on the eventual value of the rate, but typical short-term installment loans have annual APRs of 25% to over 100%. That being said, rates aren’t the whole story. When shopping around, be sure to account for fees, insurance offers, and the like, that stand the chance of ballooning your payments.
Short-term installment loans, unlike payday loans, are regulated and officiated by the government with a degree of oversight that makes lending to those with poor credit less frequent of a practice; this is a good thing. Payday loans have been widely ruled as predatory for their lack of rigor and are illegal in several states as a result, which isn’t to say short-term installment loans aren’t offered predatorily because they most certainly are, but it’s definitely to a less pronounced degree.
All to say, credit requirements depend on the individual lender but will be closer to what you’d see with a payday loan than what you’d see with a traditional mortgage. Short-term installment loan lenders report to credit bureaus, meaning that, if handled properly, they can be a great way to build back credit, but lenders also tend to push clients into renewing their loans once they’ve been successfully paid back, which can trap them in a cycle of debt. Be careful!
For Bad Credit
Individuals with bad credit might find short-term installment loans to be uniquely suited to their circumstances. Aside from the fact that they’re easily accessible, lenders of short-term installment loans are required by law to report to credit bureaus, unlike payday lenders, and thus installment loans, if handled carefully, can be a good way for those down-and-out to build their credit.
Short-term installment loans, of course, come with their own dangers. First, keep an eye out for hidden fees. Second, lenders typically will try to sell you on insurance for your loan which will balloon your scheduled payments. Third, lenders will also try to keep you in a cycle of debt by enticing you into renewing your loan. Finally, not all lenders are equal, and some will most definitely have less favorable terms or terms that are outright predatory. Be cautious when taking out a short-term installment loan, and don’t be afraid to walk away from the table if the deal in front of you seems overly-expensive or makes you uncomfortable.
No Credit Check
When you search online for information about short-term installment loans with no credit check, the first several pages of results are comprised exclusively of lenders offering such loans. This should be immediately suspect for anyone looking to lend without a credit check. Since the typical ‘no doc’ applicant has bad credit, is in need of cash, and feels out of options, they are vulnerable to exploitation by predatory lenders. These loans typically have astronomical fees and interest rates and can wind up trapping applicants in never-ending cycles of debt.
There are options for such people that should be explored before going to a ‘no doc’ lender tat may prove just as good, if not better, for their circumstances in the long term. Credit unions, with their cooperative structure and non-profit status, tend to be more open-hearted to applicants struggling with their credit and may lend on your word and strength of character if you approach them honestly, with humility, and with a solid plan for paying back your debts. There is also currently a vast array of online lenders or third-party startups that broker loans favorably as a way to cut into the business of traditional lenders. Finally, although it can be painful to ask, borrowing from a family member or relative is a surefire way to avoid entrapment from predatory lenders.