Are Installment Loans Bad For Credit?

Key takeaways:

• To say that installment loans are bad for credit is inaccurate.
• Installment loans can actually help your credit.
• Your lender’s lending terms and your repayment patterns are more likely to affect your credit scores.

Many people have switched to using installment loans as their primary tool for obtaining credit, even in emergencies, and for good reason. With the availability of online lenders, getting considerable credit is now easier and faster. Installment loans that could take days or weeks now process in as little as 24 hours or less. Plus, these loans have flexible repayment terms that appeal to many borrowers. Given the high cost of living and the economic volatility today, it’s safer to go with a credit option with flexible repayment terms.

Nonetheless, while the shift to installment loans is in high gear, some people are caught up in a dilemma, wondering whether installment loans are good or bad for their credit. We’re happy to resolve this uncertainty with a comprehensive answer.

Do Installment Loans Adversely Affect Credit?

No, installment loans are not bad for credit, unless the following happens:

You fail to keep up with your payments

The best online lenders work hard to make installment loans affordable for all. Installment loans have relatively low interest rates and their repayment is broken down into installments for easier repayment. Additionally, many lenders tend to be lenient, and may extend a grace period for late payments to help you keep up. When that period ends, and you default on your payment, only then can the lender report the missed payment to credit bureaus. 

Sadly, the negative entries on a credit report carry weight and could cause your scores to dip significantly. Therefore, the answer to whether installment loans are good for credit, is that they should be as long as you’re committed to keeping up with your monthly payments. But, still, it’s relatively easy to make up for the dip from a single missed payment. Just avoid missing many payments, because their cumulative effect can seriously damage your credit history and consequently, your credit score. 

When several hard credit inquiries are made on your credit history 

It’s true that your credit could suffer a hit just because you approached lenders to ask about your qualification for their installment loans. It’s another reason why people claim that installment loans are bad for credit. But, this does not only happen with installment loans; it applies to all kinds of loans. Whenever you need credit and you approach many creditors, know that some of them conduct hard credit inquiries on your credit. A hard credit inquiry is an in-depth review of your credit history. When many hard credit inquiries register on your credit report, they raise questions about your creditworthiness. Consequently their negative effect causes your credit scores to dip.

What’s the Actual Effect of Installment Loans on Credit?

To settle the debate on whether installment loans are good or bad for credit, the truth is that these loans build your credit. Firstly, by taking on a new loan and repaying it diligently, you can help your credit score by demonstrating that you’re responsible with credit. Lenders are more likely to trust you in the future and may offer more friendly interest rates.

Secondly, installment loans are good for credit because you can use the funds received to pay off your other debts and improve your credit scores. The average American services several debts at a time, and if you use your installment loan funds to make debt payments, you lower your credit utilization rate, which in turn helps your credit score. In addition, when your steady loan repayment history appears on your credit report, it strengthens your payment history, and this, too, helps your credit score. Therefore, installment loans can have a positive trickle-down effect on credit, and could be used to repair bad credit.

Apply For An Installment Loan

In a word, whether installment loans are bad for your credit or not depends on your lender’s loan terms and your repayment patterns. Minute Loan Center has addressed both issues with our easy loan terms. First, we do not conduct hard credit checks that could hurt your credit (we do soft inquiries), and we do not report your loan repayment to credit bureaus. Instead, we offer a significant credit limit that you can use to settle other credit liabilities and when your payments are posted to your credit history, your credit scores will go up. 

So, go ahead and apply for Minute Loan Center’s installment loans. They are easy to qualify for and have manageable repayment terms.