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Some people decide to avoid taking an auto loan and go for an installment loan. They find it can be easier and are more comfortable with dealing with their own bank. Many others feel installment loans are a bad option when purchasing a vehicle. Here are the benefits of purchasing a vehicle with an installment loan.
It Is Your Vehicle
The main benefit of purchasing a vehicle with an installment loan over an auto loan is that the vehicle is yours. If you take an auto loan, that vehicle is used as collateral. Although highly unlikely, one missed payment could put you in jeopardy of losing the vehicle. However, if there was something to go wrong where you miss a payment on your installment loan, you can contact the bank and advise them of the situation to possibly avoid late fees. Once you have taken an installment loan, you will pay the full price for the vehicle and the title belongs to you.
Build Your Credit
Installment loans help build your credit. Some people argue and say it does not help your credit score. However, your credit score is comprised of a good mixture of credit lines such as credit cards, finance companies, retail accounts, mortgages, and installment loans. So, if you do not already have an installment loan, taking installment loans to buy a vehicle is a good idea. The loan is usually up to 24 months, so pay it off on time instead of early. This helps you establish a credit history with the lender. Once you have closed the account, then there is nothing left to report.
You Will Have Less Interest to Pay on the Loan
When you get an auto loan, the term is usually set out for 60 months or more. This extends the length of time you will be paying on your interest rates and generates more money for the finance company. Installment loans have shorter payment terms so you can pay them off faster. You may be able to lock in a lower interest rate as well. The total cost of the life of your installment loan may be cheaper than the life of the auto loan.
If you pay an auto loan off early, you could be facing an early loan payoff penalty. This is because the finance company was set on making a certain amount of money off your loan. If you go with an installment loan, and needed to pay your loan off early, there generally are no early loan payoff penalties applied.
Establish a Relationship with the Bank
By getting and paying your installment loan in full with a bank or credit union, you are establishing a good relationship with the lender. It may have been difficult for you to get this loan. You may have needed a co-signer. However, once you have paid this loan off, you may have established enough personal credit with them to take another loan out on your own in the near future.
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