Installment credit is a money term you need to understand. Installment credit is a loan for a fixed amount of money. The borrower agrees to make a set number of monthly payments at a specific dollar amount. An installment credit loan can have a repayment period lasting from months to years until the loan is paid off.
Considering getting an installment loan? Lenders need assurance that they will be repaid when they give you a loan. Here are a few of the things that they consider as they determine the risk involved of offering you a loan:. Co-signing and co-borrowing have their own pros and cons. If the coronavirus has left you without income, you may be able to find loan relief. Having a criminal record can affect your housing, finances and employment.
But home equity lines of credit, which is a type of revolving credit—not an installment loan— could also come with a higher borrowing limit than credit cards.
Installment loans can also have these downsides: Lack of flexibility: If you need to borrow a set amount—say, to buy a car—an installment loan is ideal. For instance, those with excellent credit may be able to qualify for personal loans with interest rates as low as 4. Installment Loans vs. Revolving Credit Installment loans and revolving credit are two ways to borrow, but they work very differently.
How Installment Loans Affect Your Credit As is true with any form of borrowing, taking out an installment loan can impact your credit either positively or negatively. If you make all installment loan payments on time, that will help strengthen your credit.
On the flip side, if you make late payments or fall behind and miss them, your credit will suffer. Credit mix: Having a mix of different forms of credit can benefit your credit score, too. If your credit utilization rate is already high due to large credit card balances or other loans, adding a loan to your credit file could cause your score to drop.
How to Know If an Installment Loan Is Right for You Taking out an installment loan will both affect your budget and have a long-term impact on your credit. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article.
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Performance information may have changed since the time of publication. At the end of the day, the most important factor is that you use your credit products to your advantage. Feel free to charge expenses on your credit card to earn points or cash back; just make sure you can pay the balance off in full by the time the bill comes.
The same goes with installment loans like personal loans , car loans and mortgages. Skip Navigation. Follow Select.
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