Any loans that include a contract of repayment of the amount borrowed (plus interest), to be paid with a set number of payments on a schedule, are considered as installment loans. Installment loans can be for as little as a couple months up to 30 years, depending on the amount and type of loan. These loans are different from a line of credit because, once the final installment payment is made, the loan is paid in full and the account is closed.
Installment loans are a type of credit account that can be used for several purposes, such as making purchases or consolidating bills. Among the reasons why they are so popular is because repayment is broken up into manageable smaller amounts that borrowers can fit into their budget each month.
This article will cover these subjects about installment loans:
When a borrower applies for an installment loan, they can get approved for either a secured or unsecured loan. A secured installment loan means that property of some kind is used as collateral which can be taken back by the lender if payment is not made. Unsecured loans are usually for a smaller amount and do not require collateral, but the lender can sue the borrower if payment is not made.
Below are examples of installment loans and whether they are secured or unsecured:
Personal loans, either through a bank or credit union or other institution are considered installment loans. They are sometimes called signature loans, and are repaid on a monthly basis over an agreed period of time. Personal loans are not secured by collateral and can be used for any purpose.
Installment loans through traditional lenders are usually the best choice for borrowers, since they offer better interest rates and terms. However, people with bad credit might have trouble getting approved for an installment loan from a bank, or they may be charged higher interest.
Even if a borrower has bad credit, it is a good idea to at least make an attempt to get approval for an installment loan from a bank or credit union. Even if the interest rate charged is higher because of bad credit, most likely it will not be as high as the costs involved with payday loans or online guaranteed approval installment loans. Not only do these loans commonly require a lump sum repayment, but they often result in borrowers being caught in a debt trap.
Requirements for installment loans are basically the same, whether it is to purchase a car, home, education, or a personal loan.
Lenders will consider the following:
The lender needs to have documentation which will prove how responsible the borrower is with handling credit and remaining employed. The lender will factor in several issues to paint a picture that will determine eligibility and, if approved, the rate of interest that the borrower will be charged.
Lending institutions of all shapes and sizes advertise installment loans among their financial products. This is an advantage for the borrower, since it allows the room to search various lenders to find fees, interest, and terms which work to their distinct advantage.
Among the sources to look for installment loans are:
With regard to installment loans, there is no such thing as too much research. It is very important for the borrower to carefully investigate any lender they are considering. Each has different terms, rates, and other rules regarding their lending practices. Borrowers should read all of the fine print before signing off on a loan. Comparison shopping for a lender is the most efficient way to end up with the best deal.
Installment loans are like any other form of credit, they should be used responsibly and only when needed. They should not be used to solve financial problems, which can cause a cycle of debt that can last a lifetime. However, they are a fine solution to get money in order to achieve goals or get items that can be paid back over time.
A successfully executed installment loan is one that has terms which are ideal for the borrower’s budget. The timeline for repayment should be reasonable. The borrower should make at least the minimum payment, on time, every time. And finally, the loan is paid in full, with the lender satisfied and the borrower in less debt with a very good entry added to their credit report.