The online lending industry is brimming with various short-term loans, oftentimes discombobulating you when it comes to choosing a loan as per your financial condition. When you come up an emergency, you have got no time to muse over the option and you grab the deal which you think suits your needs.
The demand of installment loans and personal loans are on the rise. However, many of you are still not clear about when you should apply for them. Many borrowers are under the impression that both are same loans. This blog discusses the difference between both types of loans in detail.
Instalment loans: when to apply and what to consider
An instalment loan is a type of short-term loan you take out to fund your unexpected expenses. These loans come with small amount paid over a period of 12 months. Since each lender follows different policy, you are likely to get these loans for three, six or none months too, depending on your credibility.
The purpose of taking out these loans is build credit. Many borrowers with bad credit history struggle to have a loan approved with lower interest rates. These loans have been designed to give such borrowers a chance to improve their credit scores.
Other short-term loans like payday loans and no-credit check loans are paid in lump sum as they come for very short period varying from 14 to 30 days. You will get the loan at a high interest rate because of less-than-perfect credit rating. Further, they will not help you build your credit because of one-go repayment.
Though instalment loans outweigh the benefits of other short-term loans, you cannot make hasty to take out these loans. Your credit score will go down if you fail to pay any repayment on time. Some lenders do not provide these loans with amortising feature, means your each instalment will be the amount of interest only and you will pay off the principle at the end of the tenure.
When you take out an instalment loan, you should apply for amortised instalment loan. Your each repayment will go toward the principle as well as the interest.
Personal loans: when to apply and what to consider
A personal loan is a type of an instalment. The major difference is you can apply for these loans for major expenses. The disbursal limit of personal loans is generally higher than short-term instalment loans.
A direct lender will always want you to have a good credit score if you want to take out a personal loan. Since the duration of these loans is longer than instalment loans, the lender will approve your application only when your credit rating is good.
Not all lenders deter bad credit borrowers from applying for these loans, but you will end up with paying high interest rates. Further, the term will be shorter. You may apply for these loans for wedding, buying a machine or equipment, or any other expense that you cannot fund with short-term instalment loans.
Before you apply for the personal loan, you should probe into your credit score. Ask credit bureaus to send you a copy of your credit report. Peruse all details from your personal details to a number of defaults. Most of the time, borrowers fail to get the loan because of erroneous information.
Your credit report may have a default that you have not made or your address and other contact details might be inaccurate. If any error appears on your report, you should request the bureau to rectify it. The sooner you get it rectified, the better. Note that it may take at least 28 days.
Try to improve your credit score by paying off other debts and utility expenses. Do not fill out multiple applications as it will leave footprints on your report. The lender may doubt on your creditworthiness. They may infer that you are in great hunger of the loan and probably rely only on borrowings for your regular expenses.
The bottom line
Whether you apply for an instalment loan or a personal loan, you must do extensive online research to choose the lender who offers the personalised loan deal. Take financial guidance from direct lenders and opt for the loan that suits best your needs.