When you don't have credit or minimum credit, installment loans can help you build your credit profile. Once a loan is approved for credit creation, the money is deposited into a savings account or a certificate. The money is not given to you until you have paid off the loan. To qualify for a decent installment loan from a major lender, you need a credit score of at least 580.
However, to get a personal installment loan with no opening fee and with a low APR, you'll likely need a higher score. It's important to have both installment loans and revolving credit to maintain a good credit score, but revolving credit tends to be more important than the other. Not all installment loans have good conditions, so having good credit can make it easier for borrowers to qualify for a loan and possibly get a better interest rate. If you have lower credit scores, you may end up with an installment loan with a higher interest rate and expensive fees.
An installment loan can be an option in many different situations, from making a large purchase to consolidating your debt. If you can make payments on time and pay off the loan as agreed and your account is reported to the credit bureaus, you could have the added benefit of improving your credit rating. For example, the Visa Petal 2 credit card allows applicants with no credit history to apply and there are no charges of any kind. If you've recently seen a drop in your credit rating, multi-installment loans can help you recover lost credit points.
Unlike forms of revolving credit such as credit cards or a line of credit, you must decide exactly how much money you need before you borrow the funds. Many of your customers will appreciate it if these lenders don't report payment information, but someone looking to be accountable and improve their credit rating won't. Auto loans are generally repaid in monthly installments in a range of 12 to 96 months, although not all lenders issue loans with terms within that range. While you shouldn't apply for an installment loan just for the purpose of accumulating your credit, if you need an emergency financial solution, creating your credit could be a positive aspect with an installment loan.
Many installment loans have fixed repayment amounts, so the amounts don't change over the life of the loan. When looking for loans, look for lenders that provide this information only with a soft credit query, as too many inquiries could affect your credit score. Making your installment loan payments on time every month will help improve that part of your score. We highly recommend setting up autopay to ensure that you never forget a payment and accidentally damage your credit history.
