30 August 2023

How Do Installment Loans Work? A Beginner’s Guide

installment loans installment loans

Are you a Canadian who is looking into installment loans? If so, you are not alone, considering that about 70% of Canadians have some sort of debt. 

You may have been looking into different types of loans and have concluded that an installment loan is your best bet. However, that does not mean that you know everything about these loans. 

So, what should you know about installment loans? This guide goes over the most important information you need to know. 

No Credit Check Required

One of the main benefits of installment plans is that you can typically get one without a credit check. This can be a big deal to those who have poor credit or those who do not have a lengthy credit history. 

In Canada, the average credit score is around 667. Considering that your credit score can range from 300 to 900, the average score tends to be decent. So, if you do not match the average credit score in the country, you may have a smaller chance of getting approved for a traditional bank loan. 

You could just be someone that is worried about what their credit score is. If you have not checked this in a while, you may want to do so. 

However, if you go through with that and discover that you have a poor credit score, you always have the option to get an installment loan. 

Smaller Loans 

When it comes to installment loans, you are typically not going to get a lot of money for these. The reason for this is that it is meant to provide some temporary relief. 

A lot of people like to use these as payday loans to get the money they are due from their paycheck in advance. 

Most of the time, people will ask for $1,000 or less. That is because Canada does not let lenders give out much more money for these types of loans due to the interest rates attached to them. 

So, if you need a large amount of money for a loan, you may have to look elsewhere. 

Flexible Payment Plans 

One benefit to these types of loans is that there is no set payment schedule. You can work this out with the lender before you agree to specific terms and conditions for this loan. 

Most lenders cannot ask you to repay the loan before you get the next paycheck. However, depending on the lender and the interest rate attached, they may be open to giving you more time to pay this loan back. 

You can choose to attack this quickly and pay the loan back in lump sums. Or, you can choose to buy yourself some time to repay this loan and pay it back in small installments. 

Receive Funds Quickly 

Another great benefit to these types of loans is that if your application is in order, you can receive the funds requested immediately. Depending on what time of day you apply for this loan, you may even be able to receive the funds for it on the same business day

This is great for people who need the money as soon as possible. You may be someone struggling with money and may not have enough money to pay for basic necessities such as food or rent. 

Know that it is possible to receive the finances that you need within one business day. Get an installment loan if you are facing this type of situation. 

Review Terms Carefully

Before you sign the dotted line, make sure you understand all of the terms and conditions that are attached to this loan. This includes how much you are asking to borrow, how much money you have to pay back to the lender, how long you have to make these payments, and more. 

When it comes to these types of installment loans, the onus is on the lender to make sure that the terms and conditions of the loan are clearly stated. This includes having all of the details mentioned above as some of the top clauses of this contract. 

Review these carefully to make sure everything is in order before you sign the contract. 

No Collateral 

Another benefit to these types of loans is that you typically do not have to put up collateral to get approved. This means that you can avoid putting up a valuable asset, such as your car, in case you can’t pay the loan back on time. 

There are plenty of people who unfortunately, put up collateral for certain loans who think they can pay it back on time. Then, there is one unforeseen event that causes them to miss a payment. As a result, they end up losing a valuable asset such as their car. 

Luckily, you do not have to go down this route. Take out an installment loan and avoid putting up collateral that you cannot afford to lose. 

Higher Interest Rate 

The one con that you should know about these types of loans is that they typically come with a higher interest rate. That is because these loans are typically for a small amount of money. As long as it falls under a certain threshold for the amount of money borrowed, there are not exactly strict limits on this interest rate. 

Let’s say that you wanted to borrow about $1,000. In that situation, a lender could say that you have a 50% APR attached to this. So, if it takes you a year to pay this loan off, you could potentially pay an additional $500 in interest.

Use Installment Loans 

These are some of the main things that you need to know about installment loans. The main purpose of these types of loans is to allow people with poor credit to access a certain amount of money immediately.

This is usually a small amount of money where you can agree to pay the loan back in small installments. However, just know that these types of loans will likely have a high interest rate attached to them. 

Do you need a loan? Submit your request on credito.ca. 

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