What Are Installment Loans, and Should You Get One?

Last Updated on July 13, 2024 by Asfa Rasheed

Canadians are likely to get into trouble when they have unexpected expenses. The average consumer debt is $1.70 for every $1 of disposable income, due mainly to mortgages. Fortunately, installment loans can save the day. Find out what these are and if you should get one.

Installment Loans Explained

Installment loans are when you borrow cash for a fixed term, promising to pay it back in equal payments. The payments include the interest and fees and are typically due every month. An installment loan can be secured (with collateral such as a house or car) or unsecured (no collateral).

You can get an installment loan from a traditional bank or credit union unless you are in a rush or have poor credit. In either case, you can get one from online lenders.

Unsecured installment loans are helpful if you have unexpected expenses, but you can’t pay the full amount all at once. Most lenders will offer up to 60 months, allowing you to pay a fixed amount over the agreed term. Moreover, installment loans are often your only option if you have poor credit scores.

However, because unsecured loans are high risk, online lenders often charge high-interest rates. Interest rates range from 30% to 60% per annum (including all fees). Personal loans from traditional banks can have annual interest rates as low as 2.75%. So why should you even consider installment loans from online lenders?

When To Get an Installment Loan

You should get an installment loan from an online lender if you need cash quickly for an unexpected expense such as medical bills. With GoDay installment loans and other reputable online lenders, you can get your funds within a few hours.

Installment loans are also your best option when you have poor credit scores. Traditional banks and credit unions typically do credit checks for personal loans. If you have poor credit, you are unlikely to get the money you need from them. These loans can also help you repair your credit if you stick to your payment schedule.

Suppose it’s a choice between using your credit card and installment loans. In that case, you might be better off with installment loans because the payments are predictable. You know exactly how much you need to pay every month and for how long.

Credit cards are harder to manage because your monthly payments vary depending on your spending habits. Credit card companies typically compound interest daily, meaning the interest you pay increases every time you use your card. You could spend many years paying off your credit card because of the compounded interest.

The best way to keep interest payments low is to choose a shorter payment term. Lenders offer terms as short as six months, which means you pay less interest. Of course, that also means a higher monthly payment, so keep that in mind when choosing your loan term.

Where To Get Installment Loans

Many online lenders offer unsecured installment loans, making them sound appealing. However, you need to be careful. Some online lenders are not transparent about the interest rates and fees they charge, so you might pay more than you expect.

Transact only with licensed online lenders in your province to ensure you get a fair deal. They will lay out all the fees and terms of the loan agreement, so there will be no surprises. As long as you pay on time, you should be able to count on paying a fixed amount each month.

Read More: Personal Loans for Bad Credit