When you need money for a much-needed purchase or expense, there are times when a credit card, store credit account or home equity loan is not the right fit. For these situations, an installment loan or personal line of credit issued through a bank can provide you the money, which will then be paid off with interest over time.
For example, these kinds of loans can make it possible to install modern appliances in your first home or purchase a computer for school.
Why would I need an installment loan?
An installment loan — also known as a personal loan, signature loan or all-purpose loan — can help those who do not own a home, have little equity in their home or only need to borrow a small amount of money.
It can also help you build up your credit score if you make all your payments on time. This type of loan would give you a specific amount of money to be paid back over by a certain date at a fixed interest rate. The fixed term can help you stay on track and pay off the balance in time, unlike credit cards, which often have high limits that can cause you to lose control of your spending.
Such a loan can help you consolidate higher interest bills into one payment with an end date in sight. If you are considering a major purchase, a loan for the exact amount of the purchase price can keep you from overspending.
What is a personal line of credit?
A personal line of credit, similar to a credit card but often at a lower interest rate, has a set amount that you can borrow and use as you please, although the amount must be paid back by a specific time at a variable interest rate.
You can compare this option to credit card offers and see which interest rate is lowest. Be mindful that many credit cards come with an initial interest rate that will increase after an introductory period.
You can use the money borrowed from the loan or line of credit for minor home repairs, to buy a boat, motor home, farm equipment or motorcycle; purchase a computer; or pay for a vacation. It can put some extra money in your pocket when you need it, as long as you realize you are paying it back, plus more, over time.
Are there any downsides?
A personal loan or line of credit is "unsecured," meaning there is no collateral backing up the money. Because this is riskier for the lender, such borrowing often comes with stricter eligibility requirements and higher interest rates than a secured loan, such as a home equity loan or line of credit.
It is important to remember that installment loans or lines of credit have no tax benefits because the interest is not tax deductible.
Learn more about installment loans offered by Regions Bank