An installment loan is a term you might not sound familiar with. However, you, for the most part, have ever used or know about the different types of installment loans. That said, what precisely are installment loans?
It is a type of loan that enables you to borrow an amount of money if you take out a loan. Compared to revolving credit, like a line of credit or credit cards, you need to know how much cash you need before you borrow the funds.
Further, after borrowing money, you must pay the loan throughout a set period of time, which will be determined by you and the lender. Usually, payments are monthly. However, schedules can differ. This type of loan is known as an installment loan because each payment is called an installment.
To know more about this type of loan, read on!
In most instances, online installment loans will arrive with predictable or foreseeable payments, look at this site PersonalMoneyNetwork.com to know more. If, for example, you obtain a fixed interest rate loan, then your payments’ core components will probably stay the same each month until you repay your loan.
A foreseeable payment schedule and amount could make it simpler for you to budget your loan payment every month. Thus, steering clear from missing any payments due to unpredicted changes to the money you have borrowed.
What’s more, when you are looking for an installment loan, see to it that the monthly payments will not strain your budget. If it stretches your budget, you may have difficulties making a payment, primarily when an emergency arises.
Moreover, installment loans offer the luxury and serenity of knowing your debt can be repaid by a pre-determined date. Once you are done repaying the number of installments needed by the loan, your debt will also be paid off in full.
Additionally, if you take out a loan with a short payment term, you can certainly pay off the debt faster and will pay less interest.
Installment loans can also have their own set of drawbacks. For example, once you get an installment loan, you won’t be able to add the amount of money you want to borrow like you can with a line of credit or a credit card.
Rather, you will need to get a new loan to borrow more cash. When looking for an installment loan, ensure that you know the amount you have to borrow. Another disadvantage is that other loan terms and your interest rate are mostly based on your credit.
With that said, if you have experienced some difficulties with your credit in the past, chances are, you will need to pay a much higher interest rate compared to those with stellar credit scores. Keep in mind that high-interest rates can lead to a higher total cost of borrowing and larger monthly payments.
For this reason, it is a wise idea to improve and enhance your credit health before you start applying for installment loans. Aside from that, an installment loan can also arrive with other penalties and fees.
Some creditors will require borrowers to pay origination fees and credit check fees, increasing your total up-front cost. In addition, lenders can charge prepayment penalties, as well.
Examples of Installment Loans
Most loans people usually take out are deemed to be installment loans. Student loans, personal loans, mortgages, and car loans are all types of installment loans.
- Personal Loans. This type of installment loan can be used for many different purposes, such as paying off medical bills or consolidating debt. Personal loans usually have repayment terms between twelve and ninety-six months. Also, personal loans have higher interest rates compared to other loans because this type of loan do not need collateral.
- Mortgages. This type of installment loan is used to purchase a house and is normally repaid between fifteen and thirty years with monthly payments. Some home loans arrive with fixed interest rates that usually don’t change. Thus, the interest payments and standard monthly principal will not change, too.
- Car Loans. This type of installment loan is usually paid between twelve to ninety-six months, even though not all creditors issue loans with repayment terms within that range. Keep in mind that loans with longer repayment terms typically arrive with lower monthly payments and high-interest rates. That said, you may end up paying more to purchase a car with an eighty-four-month loan, even if the monthly payments are low.
If you are planning to take out an installment loan, see to it that you fully understand the conditions and terms of the loan you agree to. When you know what is being offered, you can deliberately look for the best installment loan for your needs. Further, installment loans can significantly help your credit if you pay as agreed.