Grace Enfield, Content Writer
Installment loans give you a lump sum of money through a bank transfer or paper check and then require you to make payments at regular intervals until the amount borrowed is repaid in full, with interest. Some installment loans are secured by collateral, while others are not.
There are various types of installment loans, including personal loans, mortgages, home equity loans and student loans. Each loan type has different APRs, term lengths, loan amounts and fees. The requirements to get approved for a loan will vary by lender, as well.
How Installment Loans Work
- You apply for the loan, and the lender evaluates your creditworthiness. You have to give the lender some basic information in the loan application, such as your age, date of birth, address, income, employment history and more.
- The lender gives you a lump sum of money, if you are approved. Once you get approved, your lender with either send an electronic transfer to your bank account or a paper check with the full amount of your loan.
- You use the money to pay for an expense. With personal loans, you can use the money for almost any expense. If you have a loan for a specific purpose, such as a car loan or a mortgage, your options are more limited.
- You make loan payments at regular intervals. After you receive the funds, you'll need to make regular payments to pay down what you owe. This is usually done monthly.
- Your lender will report to credit bureaus. If you make all of your payments on time, your lender should report positive information to the credit bureaus on a monthly basis. This information will improve your credit score. Naturally, not paying on time will have the opposite effect.
- The account will be closed once you pay off the loan. Once you pay off the loan, the lender will permanently close the loan account. You will not need to make any more payments to them after this happens.
To see which lenders may approve you and what rates you may qualify for, use the free pre-qualification tool on WalletHub. This tool won't hurt your credit score.
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