Unexpected expenses can arise at any time – your car needs repairs, your roof leaks, or a family member needs an emergency root canal.
If you find yourself in a tough financial situation, there’s no need to worry. There are a number of available options to help you out of this bind, such as installment loans.
Installment Loans Explained
Offered by most private lenders and banks, an installment loan is a borrowed amount that can be repaid through flexible repayment options of 12 to 60 months.
How it works: You receive a lump sum and over an agreed-upon repayment period, automatic payments are withdrawn from your bank account either on a bi-weekly or monthly basis, so you never have to worry about forgetting a transfer.
Note thatinstallment loan interest ratesincrease at a daily fixed date, though they are still much lower interest rates than payday loans.
Installment loans areideal for accessing a large sum of money fast. Most companies will lend up to $10,000, sometimes more.
Installment Loans vs. Payday Loans
Payday loans are short-term loans typically used for amounts ranging from $100 to $1,500. The loan should be paid back in full upon the borrower’s next paycheque (in 30 days or less). If the borrower is unable to repay it on time, additional fees will apply, and they must repay it in two to four weeks.
Installment loans allow you to borrow larger sums of money, and the repayment period is much longer (12 to 60 months).Additionally, the annual rate ranges between 25% and 100%, and more; and you have the option of offering collateral should you be unable to repay your loan.
Secured or Unsecured Loan?
There are two main loans: unsecured and secured loans. A secured loan is protected by collateral—as personal asset—whereas an unsecured loan isn’t. Because the loan is considered less risky, lenders will offer lowerinterest rates.
If you opt for a payday loan, it willbe an unsecured loan.It is normally a small amount that is easy to obtain, which is why it comes with high-interest rates.
What can installment loans be used for?
- Car repairs
- Home repairs
- Overdue utility bills
- Building a credit score
- Medical expenses
What are the advantages of installment loans?
- They offer the possibility to make small payments over a longer time, which means less interest.
- They offer fixed payments, which are issued on a monthly or biweekly basis. This makes your finances more manageable, allowing your Annual Percentage Rates (APR) to remain fixed.
- They also help to improve your credit score.
The cons of Installment Loans
With pros, however, come certain cons:
- Lenders normally check your application thoroughly, verifying credit score, debt-to-income ratio, and income certificates.
- Depending on the lender, prepayments may not be allowed. In fact, some financial institutions charge penalty fees for pre-closure.
Requirements for Application
Here is a typical list of requirements for installment loans in Canada:
- Proof of a steady stream of income
- Good credit score and acceptable debt-to-income ratio
- An open and active bank account
- At least 18 years old
- No bankruptcy history
- Canadian citizenship or permanent residency
Pay Attention to Sneaky Fees
Debt traps are not uncommon, so pay close attention when you are searching for a private lender. Here are some tips to avoid some hidden fees:
- Ask if your lender offers loan renewal options. This option is crucial, in case you can’t pay them back on time.
- Pay attention to terms like “guaranteed approval.” Reputable lenders won’t approve blindly—they want to ensure you’re capable of paying off your debt.
If you need funds fast, installment loans may be exactly what you need. But first, do your research, and be sure to sign with a responsible and reputable lender.