Different Types Of Short-Term Installment Loans And When Each Might Be Of Value To You
Installment loans are essentially any type of loan that is repaid in certain amounts over a set period. For example, loans you take out for the payment of a car, boat or motorcycle are often installment loans because you promise the bank or the credit union that you will pay "x" amount of dollars every month for the next several months or years. What you may not know about installment loans is that there are several types. Here are some of those types of loans and why each may be of value to you.
Short-term, unsecured installment loans usually have very high interest rates and you are required to pay them back quickly. You can get this type of loan from many non-traditional lenders, including payday loan lenders. This type of loan is most beneficial when you need cash right away, you cannot get a traditional loan because you have nothing to secure it with, and you know you will be flush with cash in the next couple of months (e.g., you are expecting a sizable tax refund).
Short-term secured installment loans require some type of valuable collateral. This could be your vehicle, your wedding ring, your boat, etc. It could also be your credit card sales from the prior months of conducting business. The interest rates and fees vary widely (depending on the lender), which can include a pawn shop owner or title loan lender. The loans are often based on the fair market value or resale value of the item you use to secure the loan, but you retain the rights to the item(s) by consistently making timely payments on the loan. These might be some of the easiest loans to get, although they might not meet your full and current monetary needs.
Unsecured Based on Business Profits
This is a new type of installment loan emerging for small business owners. It helps you secure working capital based on your prior month's or prior quarter's profits. Typically, the loan amount comes with a hefty fee attached, and the amount is only a percentage of your prior month's sales or profits. However, if you own and operate a small business and you are struggling to make ends meet this month, this might be the perfect short-term solution. Small businesses located in tourist areas often benefit from this type of loan in the off-season months right before the high-season months begin because it keeps the business afloat until the high-season profits can pay back the loan.