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How to Use Installment Loans to Pay Off Revolving Credit
Michelle Raymond 2016-10-11
Even if you’ve never heard of the term installment loan, you probably know what one is: a mortgage is actually a type of installment loan. Basically, it’s a loan that you repay over time with a pre-decided number of scheduled payments, usually monthly. Borrowers can use installment loans to cover unplanned expenses, purchase big-ticket items, or offer a cushion when money is tight. Another way to use an installment loan is to pay off credit card debt. Here are some advantages to getting this kind of loan, and how you can use them to pay off your revolving debt.
Longer terms equals lower monthly payments.
These types of loans generally get paid back in a number of years rather than months. Longer amortizations, like 15 years, mean that each month’s payment is a lot lower than it would be if you had a shorter amortization like 12 months. You will end up paying more interest overall, but if you can only afford a certain amount per month, this is how you do it.
Credit card companies charge interest rates ranging from nine to 25 percent, and that interest compounds each month when you don’t pay the balance in full. This makes it really expensive to carry debt over the long term. You may also be required to pay monthly or yearly fees.
Installment loans typically have interest rates in the range of two to 18 percent depending if it is a secured or unsecured loan. If you use an installment loan to pay off your revolving credit, you could potentially save yourself hundreds or even thousands of dollars over the course of the repayment term. You could also Northcash has an installment loan FAQ available on their website for additional information and insights.
Get your money fast.
It usually doesn’t take any longer than a week, two at most, to get money from an installment loan. Sometimes you can get your money in as little as two days after you complete and submit your application. Processing time can be very fast depending on the type of information the lender has asked for and how well you provided what they need.
Reliable interest rates mean you have predictable payments.
Installment loans have fixed interest rates for the whole life of the loan. This means you don’t have to worry about the interest fluctuating, therefore changing your monthly payments, or increasing your monthly payment to an amount you cannot afford. You will know what to expect each pay period and can budget accordingly.
When you compare this to credit cards and other types of revolving debt, you will see how this is a huge advantage. Credit card companies expect you to pay a minimum amount on each outstanding balance, which can create different amounts within a wide range, making it difficult to budget each month.
Disadvantages to Using Installment Loans to Pay Off Revolving Credit
Some drawbacks do exist to using your installment loan to pay off your credit cards and other types of revolving credit.
- You might not be able to pay more than the required amount each month. Say you come into a large amount of money and want to pay off your loan ahead of time; some lenders will not allow this, or will charge a pre-payment penalty. Make sure you ask about this when you apply for the loan.
- Installment credit lenders require more information from you and have higher standards when it comes to your income, credit history, and other outstanding debt.
- This method only works if you are committed to paying off your debt and not adding to your credit cards once you’ve paid off the balances.
For additional information, you may be interested in watching the below installment loans video from CBC News: