Why Is An Installment Loan A Wise Choice For A Single Large Purchase?

12 November 2015
 Categories: Finance & Money, Blog


If you can't pay cash for a larger purchase, your only other options are either entering into a contract for an installment loan or using a credit card. While credit cards are more convenient, there are several reasons why choosing to pay for your purchase with an installment loan is a better choice.

What is an installment loan?

An installment loan is a contractual agreement to repay a debt with a fixed number of equal payments, which are usually paid monthly. There are two main types of installment loans.

An unsecured signature loan,

This means you receive a specific amount of cash to spend as you please, to be repaid in installments. This type of loan is granted based on your ability to repay and your credit history.

A secured installment loan

This type of loan is used to purchase a specific item, usually a higher priced product such as a vehicle, appliance, or jewelry. The loan is based on your ability to repay and credit history, but the standards for approval may be less stringent, because the purchased item can be repossessed if the borrower defaults on repaying the loan.

Why are installment loans preferable to credit cards on single purchases?


Installment loans are fixed at a specific payment and interest rate, with the exception of home loans, which may be contracted with a variable interest rate.

Credit cards, on the other hand, can change their interest rates even if you have a card with a fixed rate. A credit card company can decide to change the interest rate on your account if you have any late payments on that account, or even if you have late payments on an account that is unrelated. They can also decide to change your account to a variable rate account, which means it can fluctuate wildly if the economy sours.

Steady repayment of the loan

Credits present the temptation of paying a minimum monthly payment on the balance owed on your account. This will extend the length of the loan and the interest paid. Installment loans payments must be paid in full each month.

Preservation of open credit for emergencies

If you don't use your credit cards for larger purchase, your available credit line will be greater. This not only gives you the security of knowing that you have open credit to be used anywhere it is needed, but helps to keep your credit score higher. One factor that is used to determine your credit score is the use of available credit. If your credit cards are used to their maximum limit of spending ability, or even close to their limit, your credit score will suffer.

Unless your credit card's interest rate is super low and you are extremely disciplined in making payments that are greater than the month minimum on your card, an installment loan, from a company like Las Vegas Finance, is your best bet for a single large purchase.