You should expect to provide personal and business financial information when applying for an installment loan online or in person. This will likely include a recent credit report, the amount of money your business makes each month, and other financial documents.
An installment loan exists whenever you borrow money from a lender in exchange for agreeing to repay principal and interest over an agreed period. This credit product is in contrast to a revolving line of credit, which can be drawn up to the limit or repaid at any time during the term. It’s also different from payday loans, which are usually paid off in one lump sum after your business receives payments from customers.
Installment loan options include mortgage loans, student loans, personal loans, and auto loans. Business loans can also be installment loans. Because the term “installment loan” covers so many different types of loans – from short-term loans to construction loans – the application process will vary.
For example, while you can go look for an installment loan online, fill out a few forms, and be approved within a few business days, applying for a construction loan can be much more complicated. Finally, you should have a clear plan for how you plan to use the loan and how you will pay off your balance.
Typical installment loan conditions:
While qualifications for different loans will vary widely, lenders will generally rate you based on the “Five Cs” which are:
To be approved for an installment loan, your lender must trust that you are trustworthy and experienced enough to run your business effectively.
Lenders use collateral such as real estate to offset their losses if a borrower is unable to make their daily, weekly, or monthly payments. While not every installment loan requires collateral, the value of your collateral (or lack thereof) will play a role in the lender’s decision to approve your application.
To be approved for an installment loan, your lender must have reason to believe that you can repay the loan. This often means that the lender will use your debt-to-income ratio to determine whether you can repay the loan. If you have significant debt, a lender may not feel comfortable approving your business for a loan. If this is the case, it is recommended to wait a certain amount of time before you can consolidate the debt. Once you do this, the lender will be more confident in your financial ability to repay the business loan.
If you invest a significant amount of capital in your business, you will likely fight much harder than someone who does not have the money in the business to save the business. Lenders know this, so it is important for them that the borrower invests money in his own business.
Just as you analyzed market conditions before starting a business, lenders will consider market conditions before lending money. Lenders sometimes avoid lending to businesses in certain industries altogether, regardless of the financial health and reputation of any individual company. Conditions may also vary by state, which should also be considered.
In addition, the terms may affect the amount of the loan you are approved for, or the interest rates and terms that come with the approved amount.
Terms of repaying the installment loan:
An installment loan is generally repaid in equal amounts over the life of the loan. Because of this, there are usually fixed rates.
However, some installment loans will have interest-only periods or adjustable rates where your payments can change throughout the loan. It is also important to note that some installment loans may have early repayment penalties, so you must understand the specific terms of your loan.
Initially, when you shop for an installment loan, your credit score may take a small hit as potential lenders may make a hard inquiry on your credit. However, if you pay on time and in full for a long time, an installment loan will help you.
Still, remember that when you take out a loan, there’s always the risk—however small—of a default or late payment that will negatively affect your credit score.