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What are installment loans?
An installment loan is a broad term that includes various kinds of loans. All of them work on the same principle. The borrower receives the money and then repays it over in monthly payments, in other words called installments. Usually the amount of payments is equal. Generally people get these loans to make some big purchases.
How do installment loans work?
In the case of instalment loans you’re borrowing a big amount of money on a one-time basis. Once you repay your debt, the loan account is closed.
Installment loans can be collateralized or non-collateralized. It depends on the kind of loan you’re taking. For example, mortgages and auto loans are always collateralized. It means that in the case of non-repayment the lender can seize your property.
However, many types of installment loans (usually not involving large sums) don’t require collateral. But keep in mind that you will need to have a good credit score and a constant source of income for approval.
One more important fact: the interest rate of non-collateralized loans is higher as it’s riskier for the lender.
Which statement about installment loans is not true?
There are a lot of types of installment loans, and there are also a lot of false statements about them. However, this one is arguably the most popular: “Installment loans are loans on which the interest is paid first and the borrower receives the proceeds”. In fact, the debtor repays the principal and interest in equal payments (installments).
What are some examples of installment loans?
As it was said before, there are a lot of types of installment loans. So let’s see which are the most common ones.
– Auto loans
This is a common type of collateralized installment loan, where the collateral is the car. Usually auto loans are repaid in 12-96 months, but some lender organisations offer even longer repayment periods. With long-term loan monthly payments are lower, but keep in mind that they also have a higher interest rate. For example, with a 60-month loan you’ll pay much more for the car then with a 36-month loan.
– Mortgages
A mortgage is another common type of installment loan. It’s used for buying a house or a flat. Usually the terms vary from 10 up to 30 years. The safest mortgages are considered to be ones with fixed interest rates. That means that monthly payments for principal and interest don’t change throughout the whole repayment period.
– Personal loans
Personal loans are commonly used for unexpected expenses such as medical bills or urgent repair. Also they are good for paying off other debts with higher interest rates. The repayment period is usually 6-96 months depending on the lender and the amount of borrowed money. The interest rates of this kind of loan are higher because in most cases it doesn’t require collateral like mortgages or auto loans.
What is the difference between installment loans and payday loans?
A personal loan is a type of installment loan that is comparable with a payday loan. They both are usually used for unexpected expenses. However, the terms and conditions are very different. Let’s check them and find out which option is better for you.
Payday loans are technically a type of installment loan but with a much shorter payment term (until the next payday), high interest rates and no credit check required. Generally people apply for it when they’ve already spent their monthly income and need fast money.
Pros of payday loans:
- No checking. You don’t need to worry about your credit score.
- No collateral. Your property is not involved and can’t be seized in case of non-repayment.
- Easy approval. Since the lender is not checking the background of the debtor, the approval process is much easier than with the other types of loans.
- Low interest rate. Compared to payday loans, personal ones offer decent interest rates (6% up to 36%).
- Large amounts of money. You can get up to $100 000 as a loan if you have appropriate income and good credit history.
- Fast approval. Many online lenders offer fast personal loans. You can apply for it and get the answer on the next day.
Where can I get an installment loan?
You can get loans in banks, credit unions or from online lenders. However, keep in mind that banks are usually slow. You can wait for a review of your application for days, sometimes weeks. Online lenders are faster but make sure they’re trustworthy. You can search on the web “installment loans near me” and choose the best option.
How many installment loans can you have?
You shouldn’t worry about the number of installment loans. If you’re making your monthly payments regularly, then everything is fine. The law doesn’t have any limitations but many organizations are not giving one client more than two loans. Also they’re usually limiting the sum given to one person. Anyway, if you have a constant income and a good credit score, then you can try to apply for a loan from another lender.
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