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Installment Loans: Friend, Not Foe

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Debt can be a major stressor for many people and families.  If used incorrectly, debt can destroy your credit score. Having a good credit score is very important to anyone who plans on borrowing money down the road to make a major purchase or even to refinance a purchase that has already been made. Debt and mismanaging money can destroy a person's chance to get reasonable loans down the road.  This can prevent a person from renting a home, buying a home or vehicle, and can even prevent a person from getting a job in certain fields. Installment loans, when used responsibly, can help!

What is an Installment Loan?

An installment loan is a loan for a predetermined amount of money.  This kind of loan has a set amount that must be paid back in equal installments over a period of time.  A car loan is an example of an installment loan.  When you purchase a car, the total of the loan you take out is divided equally over a number of months.  Each month, you are required to pay that amount.  Installment loans don't have to be for a specific "thing," like a car loan.  If you have decent credit and/or good standing at a bank, you can get an installment loan for personal use.

Benefits of Installment Loans

  • Boost in Credit Score Credit bureaus don't mind seeing installment loans on a person's credit report as long as they are being paid on time each month.  Faithful payment of these loans can help boost your credit score.  When you pay an installment loan off, you may even notice your credit score drop a little! 
  • Decent Interest Rates Installment loans tend to have lower interest rates than credit cards.  Over time, the amount you pay in interest on a loan can be significantly less than what you pay in interest on a credit card.
  • Pay off Revolving Debt Credit bureaus like consumers to have credit cards, but they prefer the cards are paid off each month.  These are considered revolving credit because you are constantly paying off and putting more money on the card.  If you have credit card debt, a personal installment loan can be used to pay off that debt.  This can raise your credit score by eliminating the large amount of debt on revolving credit.  In order to make a positive difference on your credit score you must make the installment loan payments faithfully and on time.
  • Save Money for an Emergency  Some people choose to pay off credit card debt with an installment loan in order to save up cash in case of an emergency.  Having a hefty emergency fund is a responsible way to make sure that in the future you won't get stuck in the debt rut again.  It is important to evaluate your situation and your needs before making a decision about taking out an installment loan. Contact a business, such as Las Vegas Finance for more information.