What is an Installment Loan
Installment loan is any loan that can be repaid with interest over time through a set number of fixed monthly payments. The term of such loans can be anywhere between just a few months to 30 years. The rate of interest will depend on a few factors that includes the applicant’s financial history, loan size and repayment tenure. Lenders may also ask the applicants additional questions related to current employment and income in order to determine the repayment ability. Applicants can choose between unsecured or secured form of installment loans based on whether they are capable of securing the loan by personal property or any other form of collateral.
In order to help you get a better understanding about installment loans, consider the additional information.
Different Types Of Installment Loans
There are different types of installment loans that you can apply for depending on your situation. For instance, if you are planning to buy a vehicle or home, you may not be able to pay the charges in full. But if you apply and get approved for an installment loan, you can easily make your purchases and repay back the loan over time. These loans can also be used for other purposes such as for home improvements, higher education and to pay medical bills. Some of the common types of installment loans are mortgages, autos loans, personal loans and student loans.
How Is Installment Loan Different From Credit Cards?
Installment loans are closed-end credit, while credit cards are open-end credit. Typically, closed-end credit consist of a fixed loan amount and use for one time specific purchase. But on the other hand open-end credit, which is also referred to as revolving credit, can be used for various purchases repeatedly.
It is also important to consider other differences. They are-
Until and unless you have paid the balance of your installment loan in full you will have to make equal monthly payments. But monthly payment of credit card monthly payments usually fluctuates due to the outstanding balance.
The amount of money you borrow is fixed when you apply for an installment loan. If you are in need of more money you will have to fill out a separate credit application. With credit cards, you are provided with a credit limit, but by making on-time payments you could receive a higher limit.
Interest rates of installment loans are mostly fixed throughout the complete term of the loan. Whereas, interest rates of credit card can increase due to various reasons such as missed or late payments, variable interest rates and a drop in credit score.
Good And Bad About Installment Loans
Like most of the other loan deals, installment loans have their own pros and cons.
Some of the pros include-
- Fixed monthly payments
- Fixed interest rates
- Diversifies your credit mix
The cons include-
- Potential fees, penalties and high interest
- Potential obligation of collateral
Despite all the disadvantages, installment loans could be a useful loan option for anyone regardless of good or bad credit. Unlike short term loans, such as payday loans that should be repaid in one single payment, installment loans can be easily repaid over time. Apart from having fixed monthly payments and a payoff date, installment loans can also help you to boost your credit score by adding up a new type of account to your credit rating.
How And Where To Get An Installment Loan
Before you apply for installment loans, make sure your credit reports are error free as well as accurate. Lenders may also go through your debt-to-income ratio. So, before you apply for new finance make sure you have paid down your high credit card balances.
The best place to start with your shopping for an installment loan is online. You can also check out the local bank or credit union. Once your loan request is approved, you can get the money wired directly into your checking account. There is countless number of lenders offering installment loans online. Thus, it is important that you assess them carefully before applying for the loan. Drawing comparison of the lenders and the loan deal will help you make the right choice. Finally, carefully read the fine print of the loan agreement before signing it so that you are aware of all the costs associated with the loan deal.