3 things you did not know about instalment loans for bad credit
Instalment loans are a type of loan that you make fixed payments towards over a fixed period of time. In other words, they are called term loans. The length of these loans may vary from six months to 25 or more.
These loans can be personal loans and secured loans like auto loans, mortgages, etc. Instalment loans are not like payday loans or other emergency loans. You need a decent credit report. The criteria for signing off on these loans could also be quite tricky. Yet, there is a chance to apply for an installment loan for bad credit people.
There are so many small loans that you can get instantly, but they are not as good as instalment loans. The latter is known to help boost your credit history, or you can build it if you do not have a credit history at all.
You will be paying down the debt over a period of time at a fixed interest rate.In fact, these loans will be much more affordable than payday or no-credit check loans. However, there are certain things you do not know about instalment loans.
Instalment loans can help build a credit score, but not the way you think
Instalment loans are the best loans if you are looking to build your credit history. Borrowers with no credit history are also looked at as high default and therefore get money at a higher interest rate. So try to build your credit history with instalment loans.
Small loans like payday loans cannot build your credit history as lenders want to see your commitment despite the ups and downs in your financial situation, which is possible only when you borrow for a longer period.
Instalment loans can indeed help build your credit score, but they cannot remove older inquiries, missed payments, and default marks from your credit report.
They will fade away when they are scheduled to be, but with instalment loans, timely payments will be reported to credit reference agencies. This will be counted to calculate your credit score, and naturally, it will be up.
Once the whole debt is paid off, the account will be closed and stay on your credit report for 10 years, and you can benefit from it until then. Do not forget that any missed payment will worsen your credit score. Make sure you choose an auto-debit mode so you do not have a fear of the due date falling through the cracks.
Instalment loans are not revolving credit
Many people assume that instalment loans are revolving credit, but they are not. They are paid off in fixed instalments over time, and as soon as you clear the whole debt, you have nothing to pay off. Such loans are backed by collateral if they are large in size. Mortgages and auto loans are particular examples of security-backed instalment loans. If the sum is small, they are called personal loans.
Revolving credit allows you to keep borrowing money repeatedly and pay it off over time. Credit cards and lines of credit are examples of revolving credit. When you pay down an instalment of a personal loan, the balance whittles down, and you cannot again borrow the sum you have paid in the last instalment, but revolving credits allow you to do so.
Credits cards generally come with a credit limit, which is set by a lender based on your credit history, repaying capacity, and relationship with the lender. With a decent credit score, you will likely have a higher limit. Suppose your credit card has a limit of up to £10,000; you can withdraw as you wish. The interest will accrue on the balance until you pay it off.
If you take out a £10,000 loan for bad credit, you will simply pay down a fixed sum of money towards both the principal and interest every month. Credit cards do not get closed even if you do not charge, but instalment loans are closed accounts after the complete payment.
You have no choice about the schedule for payment
With payday loans, the due date is your payday. A lender is sure that your account will have money, and therefore it will be easier for you to pay it off. This sort of facility is not available with instalment loans. It depends on the lender which date they will set for instalments. It can be just the beginning or the end of the month.
Not being able to choose when to pay down the instalment can add up the risk on your part. You might run out of money around the due date and be unable to make the payment. This may impose late payment fees.
Well, if this happens, you should talk to your lender immediately. Tell them about your struggle. They will consider revising your repayment plan based on your current financial condition.
The final word
Instalment loans for bad credit can help you build your credit history from scratch, and they can also help improve your credit rating if it is not so good. These loans are manageable as you are to pay down fixed instalments over time.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.
