What is an Installment Loan?
The word “installment” in “installment loan” refers to the way a borrower repays a loan. Installments are incremental payments a borrower uses to pay back an installment loan.
For example, a borrower might receive their installment loan all at once in one lump sum. But they’ll pay the loan back in smaller monthly payments over the course of however many months are outlined in the official loan agreement.
With a repayment plan, borrowers can get their loan money all at once and pay it back in smaller, easier to manage increments.
How Do Installment Loans Work?
Step 1: Fill out an application with a lender that provides installment loans. This application may include personal information like contact information, address, or repayment abilities.
Step 2: Discuss with the lender the type of loan you wish to receive. They will help you navigate how much you can afford to borrow, rates and fees associated with the loan, and the payment plan.
The terms and conditions of the loan will depend on your meeting the lender’s application requirements.
Step 3: The borrower will receive the loan funds in one lump sum. If the installment loan is for a specific purpose (like buying a car, buying a home, or consolidating debts) then the loan funds might go directly to the car seller, the home seller, or the debt collectors.
Types of Installment Loans
Installment loans are a very common loan type. This means that even if you’ve never heard of this term, you probably know more about it than you realize. Many loans can also be considered installment loans if they include a similar type of repayment plan.
Mortgages
This loan type is used to buy a house. It can help home buyers pay for their home all at once with a mortgage loan and then repay that loan over a period of years in smaller increments.
So if you want to buy a home, but you don’t want to wait until you’ve saved the money necessary to pay for a home’s sale price upfront, then you can take out a mortgage instead.
Personal Loans
This loan type can be used for many different purposes. You could take out a personal loan to consolidate debt, pay medical bills, or pay rent.
Some personal loan funds are given directly to the borrower to use as they see fit, instead of being paid directly to debt collectors or car dealerships.
Auto Loans
This loan type uses the value of your car as security against a loan. Usually, the value of your car is what determines the loan amount a borrower can get.
Another type of car loan is the type of loan you get to help pay for a car. Instead of waiting to save up all the money you’d need to pay for a car, you can finance your vehicle with a car loan you pay in installments over time.
Student Loans
This type of loan is taken out by students to help pay for college tuition, rent, books, or other college-related expenses. Some student loans also allow students to wait to start repaying the loans until after they’ve finished school. But these terms will, of course, depend on the student loan provider.
Best Installment Loans
Whenever you are shopping for a financial product, it’s important to do your research to make sure you’re getting the best service for you.
As a financial product, installment loans can come with many benefits of their own. Here are a few characteristics that make up some of the best installment loans.
No Credit Check
Do you have bad credit or no credit? It can be really hard to qualify for a loan when you have a poor credit history. Different lenders will have different requirements for the credit scores of their loan applicants. Contact your preferred lender to better understand what credit requirements they have.
Direct Lender
Whatever lender you use, it’s a good idea to make sure they are a direct lender. This means the institution lends to its borrowers directly, rather than merely setting up loans for customers with third-party lenders.
Online and In-Store Options
Some people might prefer to apply for a loan in-person while other people might prefer to apply online. Whichever you are, it’s nice to know you’re working with a lender who cares about customer preferences and makes their products easy to use both online and in stores.
Quick Approval
Sometimes loans are needed for emergency situations. You might need to pay bills or pay to fix your car so you can drive to work. Emergencies like this can sometimes happen at the worst possible times.
When you’re in a financial pinch, you can look into installment loans to help you spread payments out so you can get the funds you need without having to repay a loan all at one time.
Secured vs Unsecured Installment Loans
Another word for loan security is collateral. Loan security or collateral loan is the method or the asset used to lower the lender’s risk in giving out the loan.
Installment loans can come with or without collateral depending on the lender. But loans that aren’t backed by any collateral might come with higher fees or interest rates.
What counts as collateral for an installment loan will depend on the lender and what types of collateral they accept. For instance, a borrower might be able to use the value of their car title to get a loan, a high credit score, or even a savings account.
Advantages of Installment Loans
There are many advantages to getting an installment loan. This loan type can be easier to pay off because the loan is broken down into easier to pay installments rather than one large chunk.
Payment Plan
When making large purchases it can be relieving to know a payment plan is available. That way, you can spend a smaller amount of money each month for a period of months instead of spending all the money necessary all at once.
Smaller Payments
Incremental payments can make a big purchase far less daunting than if you were to pay it all at once. A smaller, monthly payment can be much easier for your wallet to handle than one large payment.
Don’t Wait to Save
If you don’t have the money you need to pay for something now, then odds are you’ll have to wait and save up for it. But with an incremental loan, you can buy the things you need sooner instead of waiting to save up.
This can be especially helpful when you need money for essential things like your home, your car, bills, or other important purchases.
Disadvantages of Installment Loans
There are also disadvantages to any loan type. It’s important to talk with a loan representative about the loan options available to you before making a final decision.
Making Repayments for a Long Time
Remember that getting a loan doesn’t just get you the money you need right now. Those funds also have to be repaid. Make sure you understand the repayment plan outlined in your loan agreement so you know it’ll work with your budget.
Payments Can Add Onto Other Monthly Payment
Many lenders consider repayment ability before accepting a loan application. But no one knows your financial situation better than yourself. Take a good look at your monthly expenses before signing a loan agreement to make sure this added monthly payment is doable for you.
Waiting to Save Can be Better in the Long Term
Even though saving up takes time, it can be worth it in the long term. Try sitting down and weigh your personal pros and cons between waiting to save up and getting the funds you need now. Only you can make the best decision for your household’s finances.
Payday Loans vs Installment Loans
Payday loans often have a much shorter repayment period than installment loans. Payday loans are also often paid back all at once on a borrower’s next pay date.
Installment loans can come with longer repayment periods and have regular payments rather than a plan for the borrower to repay the loan all at once. This can also mean customers can borrow more when taking out an installment loan.
All loan terms will depend on your state and the specific lender you are using. Contact the lender you wish to use for more details about their loan options.
In Conclusion,
Installment loans are a loan product that comes with a repayment plan. This repayment plan can make paying back a loan easier for borrowers with smaller monthly payments rather than a larger, one-time payment.
That being said, which loan product would be best for you is entirely up to you and your personal financial citation and preferences. Talk directly with a loan representative whenever you have questions.
