Installment loans are a typical part of every adult’s life. Even if there is enough cash to go around, to pay upfront for everything you need in life, installment loans still happen. These do help to build credit but at the same time, can be detrimental to your credit score should you default on the loan. These types of loans do have interest attached to them, which varies depending on your credit score at the time of the loan being taken out.
Traditional Installment Loans
Any time that you purchase a home, vehicle or take out an equity loan, these are installment loans. Even a quick cash title loan is an installment loan. This means that based upon your credit score and your income level, a creditor can extend a loan in a specific amount of money to be paid off over time.
These payments are setup on a monthly basis and have a minimum amount due. Paying the minimum only does help to show that regular payments are being made, but it doesn’t help speed up repayment. Consider paying more than the minimum amount due to pay down the loan faster. In terms of how many to have, a house payment and a car payment are sufficient. Some consumers can handle an equity loan, mortgage and vehicle payment.
Revolving Credit Installment Loans
Revolving credit is another name for a credit card. These are a type of installment loan that gets consumers into a lot of trouble. In regards to this type of installment loan, one, perhaps two is beyond sufficient. The more plastic you have in your wallet, the more debt you accumulate. This type of credit replenishes itself as long as you are able to continue paying on the cards, there really are no limits on the number of credit cards that you can have. It is important to not cross your own financial thresholds.
Installment loans are created in a variety of ways. The more you have, the thinner your household budget gets. Keep installment loans to a minimum where possible, outside of the necessary mortgage and car payment loan types. Living outside of your means is a recipe for financial disaster. It is up to you to be keeping track of what payments are going out and what each totals. Paying on time or early is a must. Only borrow what you can comfortably pay back is the general rule.