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LOS ANGELES, June 14, 2021 / PRNewswire / – Two common types of debt are installment loans and revolving credit. Both can be used for a variety of purposes, from personal expenses to debt refinancing and more. Borrowers complete a credit application and go through a formal credit check to be considered for either, and both could help create credit. Finally, both can be secured (require collateral) or unsecured, although secured installment loans and unsecured credit cards are the most common variant of each.

Apart from that, each type of debt has different characteristics that make them more suitable for certain types of expenses. Here are some of the differences between an installment loan and revolving credit, and the pros and cons of each.

Installment loans
An installment loan (or installment loan) is a type of debt with a fixed and predetermined term and end date. They can have fixed or variable rates and usually include an amortization schedule, which slowly reduces the principal balance with fixed payments over time.

Here are some examples of installment loans:

• Auto loans

• Mortgages

• Personal loans

• Refinancing loans

• Student loans

• Most business loans

With an installment loan, the borrower incurs a fixed amount of debt all at once. In some cases, it can even refinance later for a lower interest rate and monthly payment, which is especially useful for mortgages.

Revolving credit
Revolving credit allows people to borrow as much as they want, when they want, up to a predetermined credit limit. The two main types of revolving credit are:

If a borrower reaches that credit limit on their card or line, they can’t borrow any more money until they’ve paid off some of their revolving debt.

Credit cards in particular have several advantages when used wisely. Borrowers can earn points redeemable for cash back rewards or even travel. Travel cards offer many other travel benefits, such as TSA preclearance fees and refunds for checked baggage.

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Revolving credit can also be useful for debt consolidation or for making one-time large purchases. Some credit cards offer an introductory 0% APR on balance transfers (so a borrower can transfer the debt to the card and pay it off without interest) and purchases for a specified period after opening.

Installment loans vs revolving credit: the verdict
Installment loans are much more fixed in terms of payment amount and term, making them a consideration for large purchases (like a house, car, or furniture) and debt refinancing. In contrast, revolving credit can be more flexible. Borrowers can access the funds as per their requirement, which makes them excellent for building credit and day-to-day spending. Everyone has their time and place – and when used for the right purpose, can make a significant contribution to building a borrower’s credit and finances.

Notice: The information provided in this article is for informational purposes only. Consult your financial advisor about your financial situation.

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SOURCE Advancing America

On June 30, 2020, Georgia Governor Brian Kemp enacted Senate Bill 462 (SB 462), which makes significant changes to what was previously known as the Georgia Industrial Loan Act (the Act). Renamed the Georgia Installment Loan Act, SB 462 extends coverage of the licensing and substantive requirements of the law to apply to anyone making a personal loan of $ 3,000 or less, regardless of the interest rate (i.e. an installment loan).

Previously, the law generally only applied to people making loans of $ 3,000 or less with interest rates above eight percent. In addition, the law did not apply to businesses organized or operating under the authority of a law of the State of Georgia or the United States relating to mortgage or mortgage lending companies. SB 462 removes these interest rates and organizational exemptions from the Act, although it retains other exemptions.

SB 462 makes other notable changes to the law, including:

• Transfer the duties, powers, responsibilities and other powers relating to installment loans (i.e. loans to an individual in the amount of $ 3,000 or less) from the Commissioner of Industrial Loans to the Department of Banking and Finance. finances of Georgia;
• Require the use of the NMLSR for new license applications and license renewals;
• Create new application requirements for original and renewal licenses;
• Adoption of corporate bond requirements; and
• Impose new record keeping and notification requirements.

The changes to SB 462 apply to all installment loans entered into as of July 1, 2020.

Personal Finance Insider writes about products, strategies, and tips to help you make informed decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective.

• An installment loan is a specific amount of borrowed money that is paid back in fixed monthly payments over time.
• Mortgages, auto loans, personal loans, and student loans are some common examples of installment loans.
• When shopping for an installment loan, you should pay attention to the repayment terms and possible origination costs in addition to the interest rate.
• Learn more about personal finance coverage.

When consumers need to borrow money, they have two main options: revolving credit or an installment loan. Each type of loan product has its own set of advantages and disadvantages.

Revolving lines of credit, like credit cards, can be a good way to pay off smaller loans that you plan to pay off in a short period of time. But if you want to borrow a large amount of money and want to pay it back in fixed amounts over a longer period, an installment loan will be more suitable.

In this article, we’ll look at the different types of installment loans, how to get them, and when they might be right for your borrowing needs. Here’s what you need to know about installment loans.

What is an installment loan?

An installment loan is a specific amount of borrowed money that is paid back in fixed monthly payments over time. Interest is included in the payments and the time it takes to fully repay the loan (the term) can range from a few months to 30 years.

Many of the loans that consumers are most familiar with are installment loans. Here are some examples:

Point-of-sale financing offers and “no credit check” emergency loans are often also set up as installment loans.

How to get an installment loan

You can apply for an installment loan from any bank or credit union. You can also consult online lenders like Lightstream, SoFi, Avant or others.

In some cases, you may be able to take out an installment loan directly from the company from which you are purchasing a product, such as your car dealership or furniture store.

Finally, borrowers can take out short-term emergency installment loans. Payday loan stores are among the most well-known places for borrowers to get emergency cash. Payday loans can be incredibly expensive and often charge interest rates of 400% or more.

If you need the money urgently, consider applying for an Alternative Payday Loan (ALP) from your local credit union first. PALs cap interest rates at 28% and never charge more than $ 20 in fees.

What to look for in an installment loan

The first thing you will want to consider with an installment loan is the interest rate that is offered to you. Make sure to check if the rate is fixed or variable. You may be able to get a lower initial rate with an adjustable rate loan, but that rate could also increase over time.

If you plan to pay off your loan quickly, an adjustable rate installment loan could save you money. But if you have to repay for several years, locking in your interest rate with a fixed rate loan may be the best solution.

Next, check the setup fee (if any) charged by the lender. Often, the origination fee is a fixed percentage of the loan amount. But short term loans may charge a fixed fee instead. Shop around to try and find lenders who charge reasonable fees, or preferably none.

Finally, you will want to consider the length of the tenure. In general, the longer the term, the more interest you will pay. But a longer term usually also means lower payments. If you are looking to save the most money overall, try choosing a shorter term. But if monthly cash flow is your top priority, a longer term might make sense.

How to save money on an installment loan

The interest rate offered to you on an installment loan will be based, in part, on your credit score. So improving your credit score before you apply is one of the best ways to save money on an installment loan.

How Can You Improve Your Credit Score? Making payments on time on all of your credit accounts is a good start. And lowering your credit usage rate could also boost your score. Also, periodically check your credit report for errors. If you find any, be sure to correct them before applying for an installment loan.

Another potential way to get better rates on installment loans is to improve your debt-to-income ratio. For example, paying off your credit cards or paying off your car loan before you apply for a mortgage could make a difference in the rate you are offered.

Finally, one of the easiest ways to save money on an installment loan is to pay it off faster. Although installment loans have fixed monthly payments, most lenders will allow you to pay extra whenever you want. By paying off your loan sooner than expected, you could reduce several months or years of interest on the loan.

Is an installment loan right for you?

If you like the idea of ​​being able to know exactly when your loan will be paid off, an installment loan could be a great option. And because they usually come with predictable monthly payments, installment loans can be easier to budget for.

However, flexibility is an area where installment loans are insufficient. Once the funds are disbursed, you can no longer borrow on an installment loan. So if you’re not sure exactly how much money you’ll need, a revolving line of credit may be a better option.

Installment loans – loans that allow you to borrow money and pay it back in equal monthly installments with a fixed interest rate – are a handy personal finance tool if you’re looking to pay off a large debt in small amounts. manageable pieces.

The most common type of installment loan is a personal loan, but other examples of installment loans include non-credit check loans, mortgages, and auto loans.

What is an installment loan?

Installment loans allow individuals to borrow a predetermined amount of money, paid out as a lump sum, which can be repaid over time. Typically, these loans come with a fixed interest rate and require regular monthly payments that stay the same every month. A portion of each monthly payment is applied to the principal amount borrowed, and a portion is applied to the interest on the loan.

Installment loans are different from credit cards or lines of credit, which typically have more flexible repayment terms and variable interest rates, meaning you don’t have a predictable monthly payment. With installment loans, you always know what to expect when your monthly bill is due.

Types of installment loans

Personal loans

A personal loan is money provided by a lender that can be repaid in monthly installments over a specified period at a fixed interest rate. These loans are available from online lenders, private lenders, and credit unions.

The proceeds of a personal loan are provided in a lump sum and can be used to finance a variety of needs.

“A personal loan can be a great financing option for consumers looking to budget for a wide range of expenses, from auto repairs to home renovations,” says Mark Victoria, unsecured loan manager for TD Bank. “A very common and effective use of a personal loan is to consolidate higher interest credit card debt. “

The repayment terms for personal loans typically range from 24 to 60 months, but some can be as long as 72 months.

Loans Without Credit Check

Loans without credit check are often provided by payday lenders who do not check your credit score before lending money. Payday loans are meant to help consumers in times of emergency or when they have no other source of credit.

Payday loans are often short term, high cost loans. When applying for these loans, your credit score does not matter because your paycheck is used as collateral against the amount borrowed.

Here’s how it works: When you’re approved for a payday loan, you give the lender a post-dated check for the amount borrowed plus fees. The lender keeps this check and gives you cash. On your next payday, the lender cashes the check you provided.

If you take out a loan online, you give the company permission to withdraw the funds from your bank account on your next payday after you’ve been paid by your employer.

The payday loan amount is less than that of a personal loan, often limited to around $ 500, but in some cases the limits are higher.

Mortgages

Another common installment loan is a mortgage. The most popular mortgages require homeowners to repay the borrowed money over 15 or 30 years with a fixed interest rate. Since a mortgage is backed by collateral, such as a house or condo, interest rates tend to be lower.

Auto loans

Auto loans are another popular type of installment loan. Typically, consumers put down a down payment on a car or apply the trade-in value of their existing car and then finance the balance of the purchase price with a car loan. Monthly payments are made to lenders until the car loan is paid off in full.

Advantages and disadvantages of installment loans

Benefits of installment loans

Installment loans have many advantages. A few include:

• Regular monthly payments: The monthly payments remain the same throughout the life of the loan, making it easier to build a family budget and pay bills on an ongoing basis.
• Increase in credit rating: Establishing a past due payment history on an installment loan helps improve your credit score.
• Refinancing opportunities: If interest rates drop or your credit rating improves, refinancing into a new loan can be beneficial because it will likely reduce your monthly loan payments or shorten the term of the loan.

Disadvantages of installment loans

If you are considering taking out an installment loan, be sure to consider some of the downsides:

• Fixed payment: Since installment loans deposit funds in a lump sum, you cannot increase the amount borrowed if you encounter a new financial hurdle or emergency.
• Potentially long payment schedule: Installment loan payment times can be long. It is important to make sure that you will be able to make the payments on time each month for the duration of the loan you are accepting. Conversely, if you want to prepay your loan, be aware of the prepayment fees that your lender may charge.
• Can be expensive for bad credit: The interest rate you receive from an installment loan depends largely on your credit score. If you have below average credit, you may be turned down for a loan or offered a high interest rate that will make your monthly payments more expensive.
• Potential costs: If the interest rates drop, you can opt for another personal loan at a lower rate. However, you may need to pay other original fees to process the loan.

Where to get an installment loan

Installment loans can be obtained from a bank, credit union, or online lender. As you shop, you’ll benefit from the lowest fees and interest rates.

Many lenders allow you to apply for a mortgage, car loan, or personal loan online. Personal loans are often approved within days, while auto loans and mortgages require a more in-depth check of your credit history and credit rating.

“As with all loans, the lender decides if you qualify based on your income, credit history and credit experience,” says Todd Nelson, senior vice president at LightStream.

Whatever type of loan you are looking for, we recommend that you check the rates of different lenders before committing. Many online lenders offer prequalification, a process where you enter a few details about yourself and your desired loan terms in exchange for a quick decision on whether or not you are eligible for a loan from that lender. Prequalification uses a flexible credit check, which means your credit score will not be affected.

Alternatives to installment loans

Installment loans are not the only way to access the cash needed to make large purchases or to pay off debt. Here are some other options.

Personal lines of credit

A personal line of credit (PLOC) is a generally unsecured revolving line of credit account that has a variable interest rate. These accounts work much like a credit card. You request a specified amount of credit and then access the money as needed. Refunds are based on the amount of money that has been used.

Applying for a PLOC usually does not require providing a guarantee, like your home. However, PLOCs are often reserved for consumers with a very good credit history, often those with a credit score of 680 or higher.

Constructors credits

Usually offered by community banks and credit unions, credit loans are aimed at those who do not have a good credit rating or who have little or no credit history.

With home builder loans, you request a specific amount of money from a lender and make monthly payments on the borrowed amount.

However, in the case of a credit builder loan, you do not get the money up front. Instead, the lender deposits the loan amount into a secure savings account controlled by the lender. The consumer makes fixed monthly payments for the loan for a fixed term, and once the total loan balance is paid in full, the lender releases the funds.

The main advantage of a home equity loan is that during the repayment period, the lender will report the payments on time to the credit bureaus. So even if you won’t have access to cash during this time, you will still improve your credit score.

Alternative payday loans

If you are a member of a credit union, you may also want to consider an Alternative Payday Loan (ALP). These loans are available to people who have been in a credit union for at least one month, and typically allow you to borrow between $ 200 and $ 1,000 for one to six months.

Learn more:

Financial problems plague a lot of people no matter how responsible they are with money. You don’t have to be unemployed to struggle to make ends meet. In fact, many people have two jobs and still struggle to pay their bills as costs rise but wages remain low.

Plus, there are inevitably unforeseen costs that arise throughout the year, whether it’s for medical bills, unforeseen events like weddings and funerals, or an urgent family trip across the country.

If you’re struggling to make ends meet, you might want to consider a personal loan with monthly payments. It is certainly not the last resort. On the contrary, the best installment loans come with reasonable rates and can open up possibilities for you.

However, you need to make sure you take all the variables into account. Ask yourself the following five questions when considering a personal installment loan.

1. What is the real cost of the loan?

When you take out an installment loan, it is tempting to think of it in terms of monthly payments. Can I afford to pay it off every month? If so, I should go, right? Well, not quite.

It is important that you fully understand what the loan will cost you. This includes all of the costs associated with the loan, as well as any interest you can expect to pay. It is not always easy to sort this out on your own, but luckily there are some really handy online loan calculators.

Once you have the real cost of the loan at your fingertips, you need to decide if it’s worth it. If this seems excessive to you, consider whether there are better ways to meet your expenses.

2. How will your credit score affect it?

Contrary to popular belief, personal loans are offered regardless of the severity of your credit or FICO score (your FICO score is a particular credit scoring system that determines your risk as a borrower) . Some loan companies will not ask you to disclose your credit score. However, a credit score is relevant for more than just determining whether a loan company will accept you.

Rather, lenders decide how much interest they will charge based on your credit score. They will vary the amount they are willing to give you based on your score and they may impose more stringent conditions if your score is low.

If you have a bad credit history, you are definitely going to be hit with high interest rates. Check your credit score and read the fine print of each company on the impact it will have on your loan before committing.

Installment loans can actually help you build a credit score if you’re just starting out or if you need to catch up on past missteps. If the actual cost is not too high, this can be a great strategy.

3. Is early repayment an option?

It is not uncommon for people to take out a loan to meet immediate needs. You might know that you can pay it off in a month or two. However, payday loans and other short term loans can be expensive. So a longer term installment loan seems to be the best option. You expect to pay everything back much sooner than the agreed terms.

Unfortunately, it is not that simple. Lenders earn money from long term loans because of the cumulative costs. They don’t necessarily allow you to prepay the loan, or they may impose a prepayment charge.

Find out if prepayment is an option and won’t cost you too much. Otherwise, consider shorter term loans.

4. Will a larger loan save you money?

Counterintuitively, a larger loan does not necessarily mean a more expensive loan. A larger loan gives you a lot more possibilities. While a small loan will help you pay your bills, a large loan can give you options for making money, either by investing or by giving you the ability to make bolder financial choices.

Of course, the number you get for the actual cost of the loan will be a major factor here. Even though a big loan opens up options, a high cost can negate the benefits.

5. Should I consolidate?

If you have already opened a number of personal loans, you should ask yourself if another loan is really the solution. It may give you relief in the short term, but leave you struggling for the foreseeable future. It is better to know if consolidation is possible.

Consolidation takes all of your loans and consolidates them into one loan. This can be done at no cost to you, making it easy to pay off everything without a huge cumulative interest rate.

Personal installment loans can create opportunities, but if you rely on them too often, you can dig yourself into a hole. Consider consolidation before opening a new loan. If that’s not an option, try to find alternatives.