People with bad credit often find it nearly impossible to get a loan with a realistic repayment term and interest rate. Financial institutions such as banks, etc., are typically reluctant to lend money to people with bad credit as it carries the risk of default; subsequently, lenders may end up losing money due to non-repayment of the loan.
However, there are still several lenders who continue to offer installment loan choices to people with bad credit and bad financial past, with the belief that even they merit a second chance.
With installment loans, borrowers can borrow a certain amount of money and use it for whatever expenses they need the loan for. For example, it can be for medical bills, car repairs, appliance replacement, transportation charges, etc. Such loans are different from group-specific installment loans such as a mortgage, auto loans, education loans, etc., wherein the borrower has to strictly meet the loan eligibility requirements of good credit history. Also, in such cases, the loan money has to be spent on the activity that it has been taken out for.
Listed below are some reasons why people with bad credit should opt for installment loans.
- The credit score rarely matters: Installment loans with a short term repayment period often do not require a credit check. The lenders will verify the financial soundness of the applicant via regular income, bank salary stubs, etc. Some lenders may not even check for pay stubs, but may instead be happy with just a working bank account that is in the bank’s good books. It may, however, be noted that leniency with regards to credit history and other factors mean that installment loans come with higher interest rates.
- The approval and disbursal of loan is quick: Installment loans generally offer small dollar amounts (between $300 and $1,500) as loans with short repayment periods (between 3 months and 1 year). Hence, lenders typically approve such loans within a day or two. Additionally, once the loan is approved, the money gets deposited in the borrower’s bank account within a day or two. Thus, borrowers can avail of the much-needed funds as and when they need it.
- Your credit score can improve: As installment loans come with a short term repayment period, it is often easier for borrowers to repay such loans. Emergency expenses or unforeseen situations often occur over the long term, and such things are what often results in loan defaults. Borrowers only need to repay the installment loans on time within the repayment period. Such good repayment history is reported by lenders to the credit bureaus, which in turn helps improve your credit score.
- The interest on installment loans typically does not rise: Mortgage, auto loans, and other such types of loans come with variable interest rates. Thus, with such loans, the monthly repayment amounts can increase with the variable interest rates. However, installment loans come with a fixed rate of interest. Thus, borrowers have to pay a fixed amount on the due date for the duration of the loan repayment period. Thus, borrowers can plan ahead to repay the loan without worrying about changes in the repayment amount.