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Many people avoid installment loans due to common misconceptions involving credit, fees, and other worrying financial factors. Misinformation can prevent individuals from making informed financial decisions, which is why it’s important to make sure you understand the truth about installment loans and what they can do for you. Here, we’ll debunk the top five myths about installment loans so that you can choose for yourself.
When we talk about installment loans, we’re referring to a borrowed sum of money that is repaid in fixed intervals over a specified term. Often these take the form of personal loans, car loans, and mortgages, and understanding this common type of borrowing is very important for financial planning. The term “installment loan” often comes with some negative connotations that are not necessarily accurate. With that in mind, let’s get to the bottom of these common myths about installment loans.
The concept that installment loans are only for those with bad credit can be a major deterrent for potential borrowers. Fortunately, installment loans are actually available to people with all kinds of credit scores. Good credit can help borrowers secure better loan terms, meaning lower interest rates and more flexible repayment options, by proving to potential lenders that you are a low-risk and reliable client. Installment loans can actually help to rebuild your credit over time, which we’ll get into in myth #4.
Finding the right installment loan for you often comes down to choosing the right lender. Reputable lenders like Credit Central provide transparent terms with no hidden fees, and installment loans overall tend to have less secret charges than other types of borrowing, like payday loans.
Common costs, including origination fees, documentation fees, and optional insurance, should be spelled out in a loan agreement. If you don’t see these fees listed anywhere, be sure to ask your lender and have a full understanding of all charges involved before agreeing to a loan.
When comparing lenders for competitive rates, make sure to check the lender’s requirements for qualification, APR, and funding speed. A number of variables go into determining the rates at which you might qualify for an installment loan, and having a good idea of where you stand before approaching potential lenders will help you feel prepared and educated.
Many lenders actually allow early repayment with minimal or no penalties. Make sure to check your loan terms for prepayment flexibility, paying particular attention to any listed “prepayment penalty” clauses. If your lender allows early repayment, you can knock out payments faster and save significantly on interest.
One of the most damaging myths about installment loans is that they always negatively impact your credit score. In reality, installment loans can boost credit if managed responsibly. Credit score is determined by a mix of factors, including payment history and a mix of credit types, and an installment loan helps to diversify your portfolio. On-time payments will also build a healthy credit history, so you’ll want to avoid missing payments—make sure to set reminders on your phone or computer or make notes in a planner to make sure you’re always ahead of the game.
Installment loans are one of the most versatile types of borrowing and can be used for a variety of purposes. From something as large as an emergency medical bill to smaller debt consolidation or home improvements, the variety of available installment loan options allow you to handle your finances by spreading out practical, manageable payments.
Now that we’ve debunked these myths about installment loans, you’re one step closer to understanding the range of loan options available to you and your wallet. Credit Central offers a range of transparent installment loans with a range of rates and repayment options tailored to you. Apply online today to learn more and get started on taking control of your finances.
