With an installment loan, you borrow a specific dollar amount from a lender and you agree to pay the loan back, plus interest, in a series of monthly payments.
Qualifying for an installment loan is a great way to pay for a car, home or even pay a portion of a college degree. Home equity loans, which can come in handy for home repairs and maintenance, also are installment loans.
With an installment loan, you agree to pay a fixed monthly payment over the length of the loan term.
When determining whether you qualify for an installment loan and the interest rate that you will pay, a potential lender will look at your credit score, your annual income and your debt-to-income ratio.
Lenders look at your debt-to-income ratio to see how much you can responsibly afford to borrow in a potential installment loan.
A lender may ask you a number of additional questions including the name of your current employer and the number of years you have worked at your employer, all in determining how well you are likely to manage the monthly payments of an installment loan.
Before You Apply for an Installment Loan
Because your credit score is such a crucial part of the loan application process, it is important to keep close tabs on your credit score in the months before you apply for an installment loan.
Using Credit.com’s free credit tools, you can receive two free credit scores each month plus customized credit advice from experts — so you can know what steps you need to take to get your credit score in tip-top shape before applying for a loan.
You also will want to make sure your credit reports are accurate and error-free before applying for an installment loan. You can request a free credit report once per year from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — and correct any errors.
A good place to begin shopping for an installment loan is with your local bank or credit union, where you already have an established relationship with a potential lender. And if you are approved for an installment loan from your local bank or credit union where you already have accounts such as checking or savings accounts, you may qualify for discounts on the interest rate.