If you need to borrow money, there’s a good chance you can find a loan that suits your exact requirements.
For example, you can buy a home with a mortgage or you can buy a vehicle with an auto loan. And for younger borrowers, student loans are common.
When searching for a loan, it’s important to understand the difference between installment loans and lines of credit.
Here are the basics of an installment loan:
- You agree to borrow a specific amount of money from a lender
- You agree to pay the loan back over a predetermined period of time
- You agree to pay interest, in addition to the amount you actually borrowed
Some of the most common types of installment loans include:
- Auto loan
- Personal loan
- Home equity loan
Do You Qualify for an Installment Loan?
This depends on a variety of factors, including how much you want to borrow and your credit history and score.
For example, there’s a big difference between a $500,000 mortgage and a $20,000 car loan. While you may qualify for the car loan, lenders could have concerns about your ability to keep up with the payments on such a large mortgage.
When applying for an installment loan, your lender will look at a variety of details, including:
- Your employment status
- Your annual income
- Your credit report
- Your credit score
It goes without saying that being employed is of utmost importance. From there, your lender will use your annual income to determine how much money you qualify to borrow.
Last, but certainly not least, they’ll review your credit report and score to determine your risk.
If you have an excellent credit score, it shows lenders that you’re responsible with your money. But if you have a poor or fair score, they may have some concerns about lending to you. This can result in a higher than average interest rate.
Where to Get an Installment Loan
If you’re interested in any type of installment loan, there are a few places to look:
- Online: With a quick online search for the appropriate type of loan, you can quickly turn up hundreds of lenders who are open to doing business with you.
- Your local bank: There’s a good chance you already have a relationship with your local bank. Reach out to a loan officer to explain what you’re looking for and to gather additional information.
- Broker: For example, if you’re shopping around for a mortgage, turn to a broker to head up the process. They will shop you around to all the lenders in their network, ensuring that you secure the lowest rate and best terms.
Like most people, there will be many times in your life when you apply for an installment loan.
A sound understanding of the type you need and what you qualify for will help you secure the right loan from a reputable lender.