How are Installment Loans different from Credit Cards?

Closed end credits or installment loans and open end credit or credit cards are two main types of credit cards. When it comes to former, it refers to the amount you borrow from a lender that you pay back with interest on a monthly basis or installments. The types of installment loans are auto loans, mortgage, student loans etc.

Installment loans versus credit cards

As aforementioned, installment loans are a fixed amount you borrow for a purpose like buying a car or a house. Credit cards are more of an open ended or revolving credit that creates a balance when used and can be used repeatedly.

Credit card payments tend to fluctuate on a monthly basis on the balance you have collected. The interest rates also tend to fluctuate on the basis of late payments, a drop in credit score, if any, and if you have reached the end of the APR period. There may be credit limits, but you can get them raised on the limit if you are a good customer. If you are wondering what makes a customer good, you may need to make timely payments, have a good credit score and among other things.

When it comes to installment loans, the payment is the same every month. You borrow a fixed sum of money and if you want more, then you may need to fill out one more credit application. Moreover, the interest rates are usually fixed for the length of loan as well.

Pros and cons of installment loans

There are the plusses and minuses to personal installment loans, just like every aspect you can think of. It is essential to determine the factors to land up making the best decision for yourself. A few benefits of taking installment loans are fixed interest rates, fixed monthly payments and improving your credit score in no time. On the other hand, installment loans may also cost you extra fees and penalties, high interest rates, and collateral security as well.

How to apply?

You can apply for this loan online. After submission, your lender will have a closer look on your credit report, annual income and debt to income ratio. This ratio shows how much money you can afford to borrow. They may also ask you questions about your job like name of the current employer and how long you have been working for them etc.