What is an Installment Loan is a common question and you’ve come to the right place to find the answer.
Installment loans are meant to fill a gap between conventional lenders and payday loan and cash advance lenders. Conventional lenders who offer bank and credit union loans for large amounts over long term paybacks require strict credit qualifications and extensive paperwork in order to fund the loan. In today’s economy and in light of the recent credit crisis in the U.S., it is difficult for the person with even average credit to get this type of loan. If you have less than average credit, you may as well forget about it.
Payday loans and cash advances have become very popular as a source of quick cash for emergency use by consumers who cannot qualify for traditional bank loans or who don’t have the time for the extensive paperwork and qualification process. Payday Loans and Cash Advances typically don’t require any credit checks or paperwork and will provide the borrower with cash funds in as little as one hour. These lenders however have become infamous for charging very high interest rates and requiring the loan to be paid back in just weeks instead of years like a conventional loan. When consumers fail to pay back a payday loan or cash advance in a very short time period, they are often forced to take out another payday loan to make the payment required of the first loan to avoid penalties and therefore begin a cycle of repeat borrowing and even higher interest charges. Because of the high default rate on payday loans, they are most often limited to just a few hundred dollars per loan.
Installment Loans were created to find a common ground between the two types of loans mentioned above. The goal being to offer the quick, no hassle process of a payday loan (no credit check or faxing of documents required) and the larger loan amounts and longer payback periods of a more conventional loan. The fees and interest also fall between the two extremes so the cost of the loan is much more tolerable for the average consumer than a payday loan or cash advance. Installment loans offer higher loan amounts and lower fees than payday loans while at the same time funding that loan without the strict process of a conventional bank. If you don’t think you can qualify for a traditional bank loan or don’t have to time to wait for them to go through all of their red tape, an installment loan could prove to be a better alternative to the expensive payday loan product.
