Financial Risk Management 101: How Safe Are Installment Loans?
Tuesday, April 2, 2019, 6:00 AM | Leave Comment
Looking to get an installment loan but unsure how safe they are? You’re in the right place.
In this article, we’re going to look at that issue in a bit more detail. Installment loans have been getting a bit of criticism lately, and some critics have referred to them as predatory.
However, installment loans can still be worthwhile financial products for people in certain scenarios. Let’s have a look.
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What are installment loans?
There isn’t one specific type of installment loan. Most loans fall into two categories and those will normally either be rolling lines of credit or installment loans. With the loan, you agree a specific amount to be borrowed from your lender and terms for your loan, then pay them back in monthly installments. As you can see, it’s quite a common type of financial product. Mortgages and many other loans count as installment loans.
Installment loans can often be used to purchase high-cost items you wouldn’t normally be able to afford. As we already looked at, they’re a popular way to borrow for a house in the form of a mortgage, but you can also get installment loans for other things like cars.
Most installment loans are set over long-term rental periods, perhaps even running into decades. You will normally have a fixed interest rate, but some loans have variable rates that are tight to basic bank rates.
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How to get an installment loan
To qualify for an installment loan, you’ll need to go through a number of different financial checks. For larger loan values, you may be asked to put something up as collateral. Either way, you’ll need documentation and bank statements to prove your earnings.
Your potential lender will probably check your credit rating, and this could have a big impact on whether you get the loan or not. Your credit rating stores all your history of borrowing and repaying, and a good rating will show lenders that you’re safe to lend to. If you’ve got a poor credit rating, this could be a problem and could mean you have a hard time borrowing money.
One reason some people have poor credit ratings is that they haven’t got a history of paying back at all, rather than simply having a poor one. If that’s the case for you then you need to build a good history of sensible money management. You can do this by getting a prepaid credit card and paying it off regularly. Other ways to improve a broken credit rating include paying off more than the minimum on other loans. You can check out installment loans online for more info.
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Are installment loans safe?
Installment loans are generally safe if you have good money management skills and are sensible. If you start missing a lot of payments, this could be a problem – but you can always talk to your lender and try and renegotiate terms. One issue with installment loans is if the variable rate increases to an amount you haven’t budgeted for, so this is something you need to be careful of when rates change.
