About Installment Loans for People With No Credit History

You can get an installment loan despite not having a credit history.

People without a credit history may find it difficult to obtain installment loans. Banks and other lending institutions rely heavily on your past payment history as they make decisions about lending you money. Your employment and income are considered as well, but sometimes even a great job and salary isn't enough for approval if you lack a sufficient credit history. However, there are ways for people with no credit history to obtain installment loans.

Definition

An installment loan is borrowed money repaid in equal monthly installments. Purchases typically made with installment loans include furniture, recreational vehicles, boats and automobiles. The interest rate on the installment loan is fixed over the life of the agreement. Late charges can be added if payments are not made on time. Installment loans are considered a viable loan product for people with no credit because the presence of collateral--the item financed--can make approval for the loan more likely. Collateral reduces the risk for the lender if the consumer defaults on the loan.

Interest Rates

Interest rates on installment loans are usually lower than the rates on credit cards. Credit card interest rates can easily exceed 18 percent, while installment loans generally are available 5 percent to 10 percent interest rates. Some banks will issue installment loans for up to $250,000 or more. People with no credit should expect higher interest rates on installment loans than rates offered to those with established credit. Lenders feel that new borrowers represent a greater risk.

Applying

Applying for an installment loan is easy. You can apply at the store of place of business where you are purchasing the item, or you apply at your bank or credit union. People with no credit should consider applying where they have established bank accounts. Active checking, savings and investments accounts makes you a valued customer of the bank. That relationship might be enough to gain approval for your installment loan even though you don't have a credit history.

Asking for Reconsideration

You can ask for reconsideration even if you are turned down for an installment loan. This tactic works best when your bank or credit union has turned you down because you lack a credit history. The bank will want to keep you as a customer and may reconsider the installment loan if you make a compelling case.

Secured Loans

You could always ask the bank about a secured installment loan. For example, you could use cash in your savings account to secure the installment loan. That would completely eliminate the risk for the bank and likely would guarantee approval. The cash securing the loan would be frozen, meaning you would not have access to it until the loan was paid. However, it would continue to draw interest. Also, taking out the secured loan would help you build a credit score.

Other Alternatives

A number of lending institutions will lend money to people with no credit. Pay-day loans, for example, are a form of installment loans. Finance companies, which tend to be smaller than banks, also make installment loans. Some of the interest rates on these loans can be extremely high, but with that comes easier approval.

References

• Consumer Action: Obtaining And Managing Credit