Installment Loans

What are Installment Loans?

Installment loans are a form of online loans that are provided to the borrower in a lump sum at the beginning of the transaction and then paid back over time at monthly or biweekly intervals. Installment loans are typically between $500 and $10,000 but can go up to $25,000 or more.

The terms of an installment loan can range from short-term to medium-term durations, but most fall within the range of 6 months to under 5 years. These loans are unsecured which means they do not require any collateral from the borrower.

How Do Installment Loans Work?

Taking out an installment loan means that you are borrowing a specific sum of money, usually somewhere between $2,000 and $10,000, which must be repaid over a set period of time (such as a few months or a few years) and at a set frequency (for example, weekly, or monthly).

Check out our video on Personal Loans to understand the different types of loans available, including installment loans, and how to pick the right solution for your situation. Different loans serve different purposes and come with different terms, so it is very important to compare your options.

What are Installment Loans Used for?

These loans can be used for a variety of purposes, most common being automotive or home repairs, renovations, catching up on overdue bills, medical or emergency expenses, consolidating debt, travel or making a purchase.

What You Need to Apply for an Installment Loan?

When searching for an online installment loan, most lenders will typically ask for the same basic requirements for you qualify for a loan. This includes proof of income and employment, a valid bank account, proof of age and residency. Most lenders will conduct some sort of a credit check to ensure you are not currently in collections, or undischarged bankruptcy or consumer proposal.

Installment Loan Decision Factors

When choosing between online installment loans, there are a multitude of providers. However, it is important for the borrower to screen each provider’s offerings to achieve the best alignment with their needs and financial capabilities to repay. Some of the factors that should weigh into this selection decision are:

Efficiency, efficiency, efficiency

These loans are much faster to obtain than other forms of loans, which typically involve meeting with a banking institution’s representatives before approval for the loan is received. Comparatively, the online nature of these loans means that approval can be finished within an hour and funds can be received as soon as the next business day.

Flexible Repayment

Unlike a payday loan which have to be paid back the next time the borrower gets paid, these loans are structured more like personal loans in that regard. They allow the borrower to select the loan term and in some cases, even the repayment frequency (monthly, biweekly etc.)

Acceptance of Poor Credit

These types of loans are available to all types of customers including those with bad credit scores as long as they demonstrate a reasonable ability to repay the principal and interest amounts. On the other hand, conventional loans come with strict lending criteria to target higher credit scores.

Drawbacks

Potential downsides to installment loans include:

Higher Repayments

Because these loans can offer higher principal amounts than a payday loan, the cost of repayment from a purely principal perspective is higher as well, all other things equal.

Fees

Some providers may charge additional administration, origination or other affiliated fees, which could add up to total costs for the borrower.

Interest Rates

With the simplified processes required to obtain the loan, and relatively fewer requirements in terms of credit strength, lenders have to be compensated for the additional risk they take in lending to borrowers with an instalment loan structure. This results in higher interest rates.

How to Choose the Best Installment Loan Provider in Canada

In today’s financial landscape, installment loans have become an increasingly popular option for those seeking to borrow money. Whether you need to cover unexpected expenses or consolidate debts, installment loans can offer a flexible and convenient solution. But with so many installment loans Canada providers out there, how do you choose the best one for your needs? Next, we will help you navigate the world of installment loans, a payday loan, and bad credit solutions, ensuring that you make an informed decision and find the best installment loan provider in Canada.

Understand the Basics of Installment Loans:

Installment loans are a type of unsecured loans that allow borrowers to repay the loan over time through regular installment payments. These loans are often an attractive alternative to a payday loan, which typically require a lump-sum repayment on the following payday. Installment loans can also be a viable option for those with a bad credit score, as some online lenders specialize in providing installment loans for bad credit.

Assess Your Financial Situation and Needs:

Before applying for an installment loan online, it’s crucial to evaluate your financial situation and determine whether this type of loan is right for you. Consider your income, expenses, and any existing debts to ensure that you can afford the monthly installment payments. Keep in mind that a responsible lender will also assess your ability to repay the loan before approving your application.

Check Eligibility Requirements:

Each installment loan in Canada provider has its own set of eligibility criteria, which typically includes having a valid Canadian bank account, proof of income, and meeting a minimum age requirement. For those with bad credit, some lenders may require additional documentation or a co-signer to approve the loan application.

Compare Different Installment Loan Providers:

When searching for the best installment loan online provider in Canada, it’s essential to compare various financial companies and online lenders. Consider factors like interest rates, repayment terms, and hidden charges to find the most suitable option for your needs.

Review the Loan Agreement Carefully:

Before signing any loan agreement, make sure to read the terms and conditions thoroughly. Pay close attention to the repayment terms, interest rates, and any potential penalties or hidden fees. If you have any questions or concerns, don’t hesitate to ask the lender for clarification. Remember, choosing a responsible lender means ensuring that you fully understand and agree with the loan terms.

Alternatives to Installment Loans Canada

While installment loans can provide a flexible financial solution, they may not always be the best option for everyone. If you have a bad credit score, need quick cash, or simply want to explore other options before getting an installment loan, there are several alternatives available. Here, we will delve into various alternatives to installment loans online, helping you make an informed decision when facing financial challenges.

Personal Line of Credit:

A personal line of credit is a revolving credit account offered by financial providers, allowing you to access funds as needed up to a pre-approved limit. This option may be more suitable for those with a bad credit score, as some lenders may approve lines of credit with a lower credit score check threshold than installment loans. With a personal line of credit, you only pay interest on the amount you use, which can save you money compared to a fixed installment loan.

Payday Loans:

A payday loan is a type of short-term loan that provides borrowers with quick access to cash, typically repaid the next time they receive a paycheck. These loans can be a viable option for those who need money fast and are confident in their ability to repay the loan early. However, keep in mind that a payday loan often come with high interest rates and fees, which can lead to a cycle of debt if not managed responsibly.

Credit Cards:

Credit cards can be a convenient alternative to installment loans online, especially for smaller expenses or emergencies. Some credit cards offer promotional interest rates or rewards programs, making them an attractive option for those who need money quickly. However, be aware of the potential for high interest rates and fees if you don’t pay off your balance in full each month.

Peer-to-Peer (P2P) Lending:

Peer-to-peer lending is an online platform that connects borrowers directly with individual investors, bypassing traditional financial providers. This alternative allows you to request a loan from multiple lenders, increasing your chances of approval and potentially securing a more favorable interest rate.

Borrowing from Friends or Family:

In some cases, reaching out to friends or family for financial assistance may be the most suitable option. This alternative can help you avoid high interest rates and fees associated with traditional loans. However, borrowing money from loved ones can also strain relationships if not managed responsibly, so be sure to establish clear repayment terms and communicate openly.

Secured Loans:

If you own valuable assets, such as a home or vehicle, you may consider applying for a secured loan. By using your assets as collateral, lenders may be more willing to approve your loan application even if you have bad credit. Keep in mind that if you fail to repay the loan, you risk losing your collateral.

Facing financial complications can be daunting, but understanding the alternatives to installment loans can help you make the best decision for your unique situation. Whether you need money quickly, have a poor credit score, or are simply exploring your options, consider payday loans, personal lines of credit, credit cards, peer-to-peer lending, borrowing from friends or family, and secured loans as potential solutions.

What the Numbers Say

Millennials tend to be the greatest users of “quick-cash” loans such as a payday loan or installment loan. A survey conducted by PwC found that 42% of about 5500 millennial respondents surveyed had taken out one or both of these products at some point in their lives.

The most common purpose that these loans were used for was to pay off student debt. 2 out of 3 respondents had at least one source of outstanding debt while 30% had more than one. Delving deeper into the college educated respondents, the number of people with atleast one source of long-term debt is 81%.

While data for installment loans is not publicly available due to lower regulations in the industry, the following graph shows the breakdown by age of payday loan users. This serves as a reasonable proxy for the installment loan, owing to the similarity in their loan profiles and target market.