The term installment loan has a quite broad meaning and generally applies to personal/commercial loans. In simple terms, an installment loan is a credit tool payable in regular monthly installments typically featuring long repayment terms. Due to their lower interest rates, installment loans are usually utilized as a more reasonable alternative to credit cards or payday loans. For example, the average APR for an installment loan is over 9 percent. Meanwhile, the national average credit card interest rate is about 16.6 percent. Unlike revolving credit tools, you cannot have access to extra amounts after you pay back your installment loan, which is positive for individuals who are cautious about spending too much.
Today we will discuss some of the most common examples of how Americans mostly use installment loans.
If you have multiple credit cards in your wallet and have an outstanding balance on each of them, it may be tough to keep track of payments each month. However, with the help of an installment loan, you might combine all your payments into a single monthly bill.
Installment loans might also help you save money on interest. People who refinance their high-interest credit card debt might save money by getting a reduced APR. If you have high to exceptional credit, a balance transfer card may provide another option for debt repayment, and you may not have to pay interest. If you choose to prioritize a balance transfer card, ensure you have a straightforward repayment plan in place so you can pay off the debt before the grace period expires and you are slapped with a high-interest rate.
According to Experian's research, around 17% of Americans use installment loans for home renovation. So whether you want to renovate the whole house or just replace your appliances, an installment loan may come into practice allowing you to pay in small installments spread over a long period.
Indeed, spending a couple of hundred bucks each month is more feasible than paying all at once. However, consider that using an installment loan incurs interest, so the improvements will wind up costing more in the long term. If you are not in a hurry to complete the renovation, it may be more cost-efficient to start saving money than incur extra debt.
More than 25 percent of Americans still don't have an emergency fund to cover living expenses if something unexpected happens. Many of them go for installment loans to cover vehicle repair, day-to-day costs, or surprise medical bills. However, before deciding on an installment loan, carefully look through all possible options to fit your situation. For example, ask your healthcare practitioner for a lower price or set up a more affordable payment schedule. Or, if you lost your job, try to clarify whether you are eligible for unemployment benefits.
Student loans are often the best option to get extra money at low rates to fund educational expenses. However, if you merely want to take additional courses to stimulate progress in your career, an installment loan might be a smart choice.
Before going for an installment loan, make sure to look into free options, such as asking your company for employee professional development sponsorship. If you're considering a job change, find out what amount of paycheck you may expect to earn once you finish your degree.