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Omni Military Loans Blog:

Go from bad credit to good with an installment loan

By - Posted on December 6, 2019

Are you looking for certain loans you can pay back monthly, even if you have bad credit? If so, join the club.

The cost of living seems to always rise, as incomes have not kept up with inflation. Monthly payments for utilities, student loans and food are nothing if not consistent, which has forced some military service members – and many other Americans – to work a second job, according to polling conducted by the National Foundation for Credit Counseling. Indeed, in order to accrue a larger amount of money for various expenses, roughly 50% of military members say they’ve entered the gig economy at one time or another, the survey showed.

Even when you’re doing all you can in this way, you still may not have the ability to repay what’s owed in a timely fashion. This can adversely affect your credit history and make it seem like a payday loan is your only out. But as you probably well know, payday loans charge massive amounts of interest, and buried in the fine print of these loan offers are confusing terms and conditions. Not abiding by those loan terms can do further damage to your credit score.

It’s a vicious cycle.

Here’s the good news: You have many options for loans that you can pay back monthly even with bad credit. One of which is an installment loan. Perhaps you’ve heard of these types of loans that you pay back monthly. However, there’s a good chance you’re confusing them with something else. Let’s see if we can clear things up a bit so you know about the rates and terms of this bad credit loan option and why it may be just the thing to get you out of a financial predicament.

What is an installment loan?

As its description more or less implies, an installment loan is a loan product that you pay back over a certain period of time, usually much shorter than with others – as a car loan, for example. Additionally, an installment loan has fixed-interest rates. This provides predictability and enables you to pay back the amount of the loan with monthly payments that are affordable.

These facts alone makes them distinctively different from payday loans. While it’s true, payday loans are also bad credit loans, but with these, the period of time they’re paid off is much shorter, often no more than a few weeks or a month at most (compared to six months or longer for installment loans). They’re also designed to be paid off as a lump sum. In fact, the reason why they’re called payday loans is because they’re usually due on or around the day you receive a lump sum of your own from your employer for the workweek (or two, as more employers go through payroll every other week).

The single biggest distinction between payday loans and installment loans is their annual percentage rate – meaning the interest they charge you. As noted by the Consumer Financial Protection Bureau, a prototypical payday loan these days is a $15 fee for every $100 borrowed. If that’s to be paid back within two weeks, that equates to an APR of roughly 400%! This is probably not your idea of loans with small monthly payments – or anyone else’s, for that matter. Not only that, they’re not designed to be paid back over months – but days.  By way of comparison, the annual percentage rate on credit cards – which are known to be high – averages between 12% and 30%, according to the CFPB.

This isn’t the case with installment loans, which truly are loans you can pay back monthly with bad credit. What do installment loans charge? As you might imagine, the annual percentage rate tends to vary. The better your credit score, the lower the APR tends to be.

But let’s say that you obtain an installment loan and the APR isn’t quite as low you would like it to be, which perhaps may be due to bad credit. The beauty of these is that they’re designed to be paid back over a fixed period of time that you arrange with your lender. This allows you to be more in control of your spending and can help keep your monthly payments affordable because you’re paying what’s owed for a longer stretch. It’s this consistency that can help you build up your credit history and obtain the high credit score you’ve always wanted or restore it back to good health.

How does paying a loan off early affect your credit score?

As previously referenced, with many people participating in the gig economy – delivering pizza, teaching piano lessons, freelance writing, etc. –  there may be times where you earn more one week than you do the next. This may allow you to spend more per month to pay off your loan earlier. But if you want to get your credit score higher, it may behoove you to stick by the payment schedule. According to FICO, roughly 35% of your credit score is based on your payment history and 15% derives from your credit history. Monthly payments in fixed amounts is a way to kill two birds with one stone – you’re paying off an expense while at the same time building a healthier credit profile.

How do you find a good lender of installment loans online?

The internet has made it easier than ever to find a bad credit loan lender. But because there are so many options, it can be difficult to determine which one is the right one. Your best move is to do your homework. Price and compare quotes by going to lenders’ websites and check for things like APR, the payment period allowed and the amount that you may be able to borrow. You may also want to talk with friends or family to see what they recommend.

Give us a try at Omni Financial. We’re confident we’ll become your installment lender of choice, as we offer competitive rates and repayments terms. You can apply easily or contact us to learn more. We’ll be happy to answer any questions.

The information provided in this blog post is for informational purposes only. It should not be considered legal or financial advice. You should consult with a financial professional to determine what may be best for your individual needs.

Posted in Financial Tips & Advice, Financial Tips & Advice