Having limited credit can reduce your chance of being approved for many types of loans, but there are lenders who can help people in a variety of credit situations to receive the funds they need through an installment loan.
It’s also important to know the difference between a secured loan and an unsecured loan to understand your chances when applying and your risks if you miss payments.
Secured loan vs. Unsecured loan
A secured loan requires you to put up collateral to receive funds. The collateral can be in the form of any asset you may have, with requirements vary from lender to lender. In many cases, the collateral would be property or a vehicle you own.
If for whatever reason, you can’t make your payments on a secured loan, the lender can repossess your collateral as per the agreement. This poses less risk to the lender, which is why many secured loans offer lower interest rates and sometimes less barriers to eligibility based on credit score. In other words, if your credit score is on the lower side, you may need to be willing to put up collateral to be eligible for a loan.
An unsecured loan doesn’t require any type of collateral. These loans are primarily based on your credit score and your ability to repay the loan. So, if you have a good credit history, you’re more likely to qualify for the loan and get a lower interest rate.
Unsecured loans usually have higher interest rates than secured loans because they’re not backed by any collateral, making lending out funds more of a risk for the lender. They’ll charge a bit more interest to cover the cost of the possibility of you not being able to pay back the loan, so they don’t take on as much of a hit.
An installment loan is a type of loan that provides you with a lump sum of cash that you can use toward your big-ticket purchases like a car or boat. You pay back your loan in fixed scheduled payments established by your loan terms. A portion of your installment payment will go towards the interest you owe on the loan.
A personal installment loan could fit if you have less than perfect credit. It gives you more time to make payments, and you can typically get the cash you need immediately.
The Bottom Line
Be sure to explore all your options and do your research before taking out a loan. It’s also helpful to ensure you have a repayment plan in place to pay back your loan on time while maintaining your monthly budget.