Monitoring your cash flow is an important aspect of ensuring your success as an entrepreneur. But what happens if you need a loan? If you’re self-employed, you need an efficient, predictable, and manageable way to borrow money. In this article, we’ll highlight how online installment loans are viable self-employed financing options.
What are Installment Loans, and How Do They Work?
An installment loan is a form of financing where an individual can borrow a sum of money and repay it over a set period of time. The borrower repays the amount owed by making fixed, monthly payments known as “installments” until the loan is fully repaid. This type of loan is a very common form of funding for many people since it’s easily accessible online and provides access funding to those with poor credit scores.
Types of Installment Loans
There are several different self-employed financing options available through online lenders. Installment loans are one of the most common forms of financing for large personal expenses. Although the different types of installment loans operate similarly, they all serve different purposes and have their unique terms and requirements.
Whether your goal is to purchase a new vehicle, return to school, or you just need money for discretionary expenses, the following are the five most common types of installment loans.
- Personal Loans: These loans can be taken out for almost every expense, including weddings, vacations, and medical bills. Most personal loans are unsecured, so no collateral is required to qualify. A personal loan would be granted with a fixed interest rate, and the balance would be repaid in fixed monthly installments.
- Student Loans: The cost of education and all related expenses, like textbooks, supplies, and boarding, are covered under a student loan. Given the current high cost of education, repaying a student loan through fixed monthly installments is an efficient way to decrease your debt.
- Mortgages: These loans are taken for the purpose of purchasing a home. While there are several different types of mortgages, they usually have a repayment term of 15 or 30 years, a fixed interest rate, and set monthly payments. A 15-year period will allow you to pay off your loan faster, whereas a 30-year period will allow you to pay a lower monthly income throughout the duration of your loan.
- Auto Loans: This is an installment loan taken specifically for purchasing a vehicle. The repayment period for an auto loan can range anywhere from 12 to 96 months. Auto loans with a longer repayment term typically have lower interest rates than those with a shorter repayment term.
- Buy Now, Pay Later (BNPL) Loans: These loans break up the cost of purchase into installments that are repaid at a set rate over time. BNPL loans offer entrepreneurs an easier way to afford necessary purchases without incurring expensive credit card debt.
Secured vs. Unsecured Installment Loans
Installment loans can be both secured and unsecured. Installment loans can be backed by collateral; for example, in the case of a mortgage, the home the loan is being used to purchase is used as collateral, and auto loans are collateralized with the vehicle being purchased with the loan.
On the other hand, an unsecured loan is a loan that doesn’t require the borrower to pledge collateral for approval, like BNPL loans and personal loans. Installment loans that aren’t backed by some form of collateral are approved based on the income, cash flow, and credit score of the borrower.
Advantages and Disadvantages of Installment Loans
Installment loans are very popular self-employed financing options for several reasons. However, to determine whether this type of loan is the right option for your situation, you need to analyze both the pros and cons of this type of loan.
Pros:
- Flexible repayment loans
- Online installment lenders available 24/7
- Quick and easy application
- Fixed, predictable monthly rates
- Higher borrowing limit
- Financing to borrowers with low credit scores
- Improve your credit score with consistent payments
Cons:
- Adopting a long-term financial commitment
- Additional fees and penalties if you make a late payment or are unable to make a monthly payment
- Higher interest rates for borrowers with low credit scores
- Borrowers face the risk of loss of collateral for defaulting on secured installment loans
Benefits of Installment Loans for Freelancers
In recent years, there’s been an increase in people opting to take on freelance work or start their own business rather than work in a traditional office environment. While freelancing has its many benefits, it can also make it more difficult to secure the financing you need through the various self-employed financing options; however, installment loans can be an effective solution.
Flexible Repayment Terms
The monthly income of self-employed workers, particularly freelancers, typically fluctuates on a month-to-month basis. Therefore, entrepreneurs need to ensure that their monthly loan payments fall within a range they can comfortably cover without it becoming a financial strain.
Though the monthly payments are fixed, installment loans are considered flexible repayment loans since they can be easily modified for each individual borrower. The loan amount and repayment term are determined based on your ability to repay the loan, which is helpful for someone who is self-employed.
Flexible Loan Amounts
Installment loans also ensure you can borrow exactly what you need. Many times, people complain of having to borrow more or less than the amount requested for their loan. This can be extremely frustrating, especially when you need an immediate source of funding. However, an installment loan provides the flexibility to request the amount you need to cover your expenses.
Predictable Repayment Schedules
Since these payments are at a fixed amount each month, this provides predictable repayments for efficient budgeting. Monitoring your income and expenses is essential to success in any field, so having a set number in mind every month will reduce the risk of missing a monthly payment.
Credit Building Opportunities
Installment loans can also aid in building your credit history as an entrepreneur. Creditworthiness is so important when you work for yourself. Having a high credit score and a positive credit history will increase your chances of receiving more favorable loan terms and faster approvals in future transactions.
Diverse Usage
Entrepreneurs have the typical financial needs that people often apply for installment loans to cover; however, they also have unique expenses that require immediate funding. Installment loans can be used for diverse expenses, including investing in equipment, purchasing software, or supplementing finances during lean periods.
Accessibility
Many lenders see freelancers as riskier borrowers since many don’t have predictable or steady streams of income. Often, when applying for a loan, some lenders may offer freelancers higher interest rates or stricter loan terms. However, there are online installment lenders who are more open to working with freelancers than traditional institutions.
Also, since these companies operate online, they aren’t confined to standard business hours and are accessible at any time of the day. Entrepreneurs, therefore, have more access to apply for installment loans at the exact moment the need arises.
Choosing Between Online Installment Lenders
When you’re self-employed, your time is valuable, so sitting at the bank waiting to apply for a loan just isn’t a viable option. Fortunately, several online installment lenders will provide you with the cash you need without ever having to leave your office.
Each online installment lender is different, so to find the right one for you it’s important to compare multiple lenders. Consider your specific needs and compare lenders based on their interest rate, loan terms, and repayment terms.
When comparing online lenders, there are also several factors to consider outside of the loan terms. You’ll need to compare how user-friendly their websites are, their reviews, and customer service ratings. Additionally, if you’re an entrepreneur with a busy schedule, consider whether the lender offers automatic payments. This is an easy way to ensure you can stay up-to-date on loan payments.
Frequently Asked Questions
How do I qualify for an installment loan?
Installment loans are granted based on your creditworthiness. Lenders will examine your financial history, credit score, and bank account to determine if you qualify for an installment loan. In some instances, you would be required to pledge some form of collateral to secure the loan, depending on the type of loan and amount being requested.
Can I qualify for an installment loan with bad credit?
Yes. Installment loans are very popular because they provide financing options to persons with bad credit. In these instances, lenders will determine if a borrower qualifies for the loan based on their ability to repay rather than their credit history or credit score.
Can I pay off an installment loan early?
Some installment loans allow borrowers to make additional payments on their loans or pay off their loans early without any penalties, while others have prepayment fees. If you’re considering paying off a loan early, make sure you review the prepayment terms of your loan first.
Conclusion
Installment loans can be a viable option for entrepreneurs. The favorable terms of these flexible repayment loans ensure that freelancers receive a loan catered to their budget and needs. While these loans have a quick and easy application process, it’s important to take a moment to compare and verify online installment lenders before committing to an installment loan.
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