An installment debt is simply a loan which is paid over time, like most mortgages and auto loans. It is paid based on the schedule of repayment outlined in the loan agreement between the lender and the borrower. Installment debts are usually less risky than other option loans which don’t come with installment repayments, like interest only loans or balloon-payment bonds. However, even with interest only and balloon payments being available, the risks are still outweighed by the rewards. A fixed interest rate over a set term gives the lender security and a predictable return on his investment.
So why does a fixed interest rate to make a better choice for your installment debt? If you are planning to borrow more than one thousand dollars, your score is important to lenders. Lower scores mean a lower chance of obtaining a larger loan and that can put your finances at risk if you need additional cash. Lenders would much rather lend to borrowers with good credit histories and a high credit score, so they will offer a competitive loan option for you if your credit score falls below their minimum criteria.
Lenders use your credit rating as one of three factors to determine if you are a good candidate for an installment debt. If you have good credit score, you can probably get a competitive rate on your home equity or automobile installment debt. For other types of installment debt, however, lenders may offer only a single competitive interest rate or zero percent interest rate. If you have a bad credit score, it is almost impossible to find a competitive loan option. In many cases, borrowers with poor credit histories are being offered credit card debt that has an interest rate as high as seven hundred percent or even more!
Lenders use your credit scores as a means to gauge your financial responsibility, which is a major factor in determining how much money you are approved for. They also use your credit scores to estimate the likelihood that you will default on your vehicle purchase or other installment debt that you have. If you have low credit scores, you are considered a higher risk borrower, and that means that you are going to pay more interest and finance charges on your auto loan or any other kind of loan. This can translate into thousands of dollars in extra costs that are charged to you each month!
Your lender is probably not trying to deny you the opportunity to obtain a vehicle or home because you have a poor credit history. What they want to see is that you will honor your vehicle financing schedule and make all of your scheduled payments on time. If you are unable to make payment on schedule, your lender will most likely increase your rates and/or even take away your car or home from you! The last thing your lender needs is one more late payment or missed payment on your vehicle financing schedule.
If your auto loan or any other installment debt requires that you make a certain monthly payment each month, make sure you are able to do so before making a final decision on whether or not to complete the loan. You may be offered an incentive to pay off your loan early, but remember that you will have to pay that fee too! Also, you need to be certain that you can afford to make those extra payments each month. If you think you cannot afford to make extra payments every month, you may want to call a consumer credit counseling agency to help you develop a repayment plan that will work for you. Many of these organizations offer free credit counseling if your score is low and you are in over your head on payments.
Make sure that the terms of your vehicle installment debt do not prevent you from obtaining an unsecured personal loan to help you repay your vehicle debt. If your lender requires that you make your scheduled payments before approving your personal loan application, you will have no choice but to complete the loan before the agreement expires. If your lender does not approve your application before the expiration date, you may find yourself with a vehicle that you cannot drive, or even worse, a foreclosure notice on your home. It would not be in your best interest to take out a personal loan just to repay your vehicle installment debt.
Regardless of what type of debt you have to pay, you should know that there are options available to you. Use the internet to search for different online lenders who will allow you to borrow for lower prices than you would at a local bank. When you borrow online, be sure that you are able to make your scheduled payments before the due date, or you will lose any chance you may have to improve your score. If you are able to make timely payments on time, you will be able to improve your chances of being approved for a better interest rate.