When Should You Consider An Installment Loan Over A Short-Term Loan?
Posted on: 10 May 2016
No matter your situation, there's almost always a loan product available for your needs. With so many options and lenders to choose from, it's possible to pick a loan type that isn't ideal for you. This is especially true when it comes between choosing a quick, short-term loan, and a longer-term installment loan.
When You Cannot Pay the Loan Back Immediately
Many short-term, "quick" loan types require that you pay the loan back in a relatively short amount of time. These types of loans include,
- Payday loans
- Title loans
- Cash advance loans
- Some personal loans
Many lenders offer these types of loans with the understanding that you can pay them back in full, with interest, in a short amount of time. How short the term depends on the lender, but sometimes that can mean by your very next paycheck.
If you cannot pay the loan back immediately, then you shouldn't even consider such products. Keep in mind that it's not just about paying the loan back; it's about paying the loan back, in full, without creating any new hardship for yourself.
An installment loan, by contrast, allows you to stretch payments out over a longer length of time. Installment loans work just like most loans that people have a familiarity with, such as mortgages and car payments. That's because those types of loans are, in fact, installment loans as well.
When You Need More Funds than Most Short Term Loans Offer
Many lenders will cap how much they will lend someone with a short-term loan. The same is true of installment loans. The difference is many installment loans allow you to borrow far more than a short-term loan will allow.
Installment loans often come with a high-interest rate. However, that interest rate is often far, far less than those attached to short-term loans. Because of this, they're often good choices for people
- with low credit scores who cannot get a larger loan through a bank,
- and those who do not want to go the payday loan route.
When You Need More Flexibility for Repaying the Loan
Many short-term loan options have very specific payback schedules. If you live paycheck to paycheck, that aggressive scheduling can cost you far more than the loan is worth. With an installment loan, you have a lot more flexibility.
- You can stretch out the payments to different lengths of times
- You can negotiate rates and interest payments
- Fees often are included in the repayment amounts
- It's typically easier to refinance installment loans should you need to
In addition, that longer repayment schedule can actually help you build or improve your credit score.
Choosing the Best Solution for Your Needs
While there are many benefits to an installment loan, there's also a time and place for short-term loans. A title loan can work for you if you have a situation that makes it worthwhile.
An installment loan is the same. Take stock of your needs and your budget, then speak to a lender (such as one from Flexible Finance) about your options before choosing any kind of loan.
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