Everything in life is going fine when suddenly, you’re hit with a major medical expense for your dog. Or maybe you want to take your dream vacation after fantasizing about it for years, but you simply don’t have enough money. In order to get funds fast, many people will opt to pay for these things with an installment loan. However, what is an installment loan? Are there pros and cons? What can you use an installment loan for? Read on to get the answers to all these questions.
What is an Installment Loan?
An installment loan is a common loan structure. Unlike credit cards or a line of credit, called revolving credit, installment loans are a set amount of money you pull out at once to pay for a specific item. You will have the amount needed already determined before borrowing and will pay in installments. The most common types of installment loans are mortgages and auto loans; however, there are other causes for installment loans as well—usually falling under the term “personal loan.” Personal loans will have a slightly higher interest rate being there’s no collateral; however, most people get them paid off relatively quickly.
Pros to an installment loan
Know Your Payment Schedule
When you decide to take out an installment loan, you will know exactly what terms the borrower is placing on you, how long the loan will last for, and when you can expect to have it paid off. This allows you to plan your finances around paying off the loan rather than worrying about what your next payment amount will be.
Debt Will Be Paid Off
Revolving credit can feel overwhelming—especially if you add to it each month. With an installment loan, you’ll be required to pay it off in a certain amount of time. Once you reach that date, assuming no missed payments, you’ll be done with the loan.
Examples of What You Can Use Installment Loans For
Installment loans are commonly used for the following:
Vacations – $2,000
The average American plans on spending roughly $2,000 per vacation, and many people will pull out a loan in order to make up for the costs. Sites like Affirm will offer 12-month installment plans for sites like Orbitz and Expedia, allowing you to get instant approval for the exact amount you choose to spend.
Car Repairs – $600+
According to AAA, the average car repair costs about $600, but expenses can quickly go much higher, depending on the state of the car. Some car repair places will offer financing programs; however, many people can get the amount they need from their bank.
Emergencies happen, and these unexpected emergencies can quickly add up when it comes to expenses. Rather than over-exerting your bank accounts or credit cards, a personal loan can get you out of an unexpected bind.
Pet Care – $500-$1,000+
Pets are wonderful companions, but they also rack up extremely high veterinary costs. The American veterinary industry makes an average of $14 billion a year; people want to keep their pets around as long as possible, and it takes a lot of money to make that happen. The average person can expect to spend anywhere from $500-$1,000/year on their pets; however, these costs can quickly skyrocket if a pet is diagnosed with a serious condition.
Home Improvements – $15,00-$200,000
Your home is likely the biggest purchase you’ll make in your life, and people want to ensure their home looks as wonderful as possible. Renovating a home is a fun experience, but it can easily exceed $15,000—especially if you need to renovate the entire home or more expensive areas like kitchens, laundry rooms and bathrooms.
Technology – $500-$2,500+
The technology industry moves extremely quickly, and people spend a ton of money each year. How much exactly? About $1.94 trillion USD per year to be precise. With more and more people opting to work from home, we can see tech spending increase as new computers and accessories are purchased for work. To mitigate these expenses, a personal loan can help you buy the equipment you need.
Medical Bills – $12,500+
Medical emergencies sadly come at a price, and the average American expects to have roughly $12,500 in medical bills at any given time. Of course, some people have significantly more, and these bills can feel soul-crushing. Many hospitals and banks offer medical debt relief programs, allowing you to pay your bills over time for significantly less.
Moving Costs – $800-$2,500
Moving is a wonderful experience, but getting your stuff from point A to point B is expensive. With the average move costing roughly $1,400, it’s not shocking that many people look to secure an installment loan to pay for the costs. Moving companies may offer you a plan through their business while others will require you to secure funds through a bank.
Installment loans are an excellent option for those who need a large amount of cash fast. From veterinary bills to moving expenses, an installment loan can help you pay for the things you need over the course of several months or years rather than needing to pay for everything up front.