Installment loans have become increasingly popular
Americans struggle to make ends meet financially. Many people will take out a short-term loan to help them get through till their next pay check. Other people, however, will use these loans to help them make ends meet over the course of several months or years. This is because the loans usually come at lower rates than more expensive types of credit and they offer a flexible repayment option.
How do installment loans work? Basically, an installment loan is a form of contract or agreement between a lender and a borrower where the latter agrees to repay the lender a fixed amount of money over a specified period of time; usually at least two installments are made over this period of time. The term of repayment can be up to thirty years and as low as a couple of months. The interest rates on these loans are usually quite low, because the lenders take only half of the total amount from the borrower’s salary as their return when calculating the balance. This lower interest rate is what makes the agreement attractive to borrowers who may not otherwise be able to maintain the same debt-to-income ratio that their higher interest rate counterparts maintain.
the lower interest rate
Because the agreement is between the lender and borrower, both parties benefit from the agreement. The borrower, because of the lower interest rate, can make larger monthly payments and thus reduce the total debt balance owed. If the borrower is able to show that they can make the required payments on time each month, their lenders will be happy to extend the term and continue to make the same payments, resulting in another large chunk of the total loan amount being paid by the borrower each month until the loan expires. In this way, the borrowers are able to pay back the full amount of the installment loans and completely pay down the debt by the end of the term.
Another advantage of installment loans is the use of the money in other ways. A borrower can make purchases using the cash that is left in the account, or they can even use the lump sum received to make home improvements. The money is available to them at the end of the term, and it allows for flexibility in budgeting during that time as well.
choose to take advantage of their revolving credit lines
Some people choose to take advantage of their revolving credit lines when paying back a debt. With many people facing financial hardship, this is often a good idea. When you borrow more money than you have set aside, you will face a temptation to go for more just because you have more of it. You should always remember to set a limit on how much money you borrow and stick to it. When your current income situation allows it, you may want to think about changing your credit cards to secured ones, but this decision should only be done after consulting with a qualified credit counselor.
If you find yourself in a bind and are in need of some extra money, look into installment loans to see if they are the right choice for you. If you decide to use these loans to pay off your credit cards, you will be better off in the long run. By paying off those credit cards, you will be saving yourself money by reducing the amount of interest you pay. You may also wish to consult with a credit counselor who can offer you additional advice.