Saturday, 13 January 2018

When To Take Out An Installment Loan

An installment loan is an alternative to a payday loan. Like a payday loan, it is easy to apply for and qualify for (compared with a bank loan), and it's also a quick source of cash in an emergency. However, installment loans can be taken out for larger amounts than payday loans, and repayments can be extended over several months or more. Although interest rates on both types of loans tend to be high, there are certain circumstances when taking out an installment loan can be a good idea.

Diversify Credit Mix

When credit agencies formulate a credit score, they are looking at a variety of factors. These include amounts of money owed, history of payments, length of credit, new credit, and finally, types of credit. Having a wider mix of credit types (e.g., credit cards, student loans, auto loans, etc.) can help to improve a credit score. Thus, people who have a lot of one type of debt can diversify their debt by paying off some of it with an installment loan. This makes sense if the interest rate on the installment loan is lower than that of the other debt.

Consolidate Loans

An installment loan can also work as a means of consolidating other loans. If the borrower can qualify for a large enough loan to pay off other debt, he or she can save money. Some companies, like Blue Trust Loans, offer lower fees to loyal customers. This method of decreasing debt can be beneficial when the installment loan is offered at a lower interest rate than the debt to be paid off and when the payments are more affordable for the borrower.

Improve Payment History

Because installment loan repayments are spread out over a period of months rather than due in a lump sum, they can help people establish a record of on-time payments that will improve their credit score. If this is a concern, make sure that the lender reports payment information to the three major credit bureaus.

Deal With Emergencies

For most customers, the main reason for taking out an installment loan is to cover an emergency. A car problem, for example, can be a real emergency if it prevents the driver from getting to work. Getting a short-term installment loan to pay for repairs is a reasonable investment that ultimately protects the borrower's livelihood.

Before considering an installment loan from Blue Trust Loans or another lender, make sure that interest rates and fees are clear and that payments are truly affordable. While installment loans have higher interest rates than bank loans, borrowers can save a lot of money by paying off the loan early.

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