Understanding what an installment loan is and some of the most common types will be helpful when you are looking to get one. Read on to learn about Installment Loans and the different types.
An installment loan can be understood as a type of loan available for borrowers who need financial assistance. It can be paid back over a set period of time, which is finalized by the borrower. During this set period, the borrowers have to pay a fixed amount until the amount is paid in full. Most people get installment loans for major purchases, such as while buying a car, a house, college, and more. When you apply for an installment loan and get qualified for it, you will get a lump sum money upfront from the lender, but before you get the money, you will have to make an agreement stating that you agree to repay the amount over the scheduled period without failure. Let’s further learn more about Installment Loans and the most common types:
What Is An Installment Loan?
An installment loan is a type of loan that allows the borrowers to take out a lump sum of money from the lender, which can be paid back over a set period. For this type of loan, you must first decide exactly the amount you wish to borrow and set the payment date as well. You can decide to schedule the repayment monthly or every other month according to your preferences. Once everything is done, the task of the borrower is to make the payment on time.
The Most Common Types Of Installment Loans: You may not have heard of installment loans, but you may have used them before. There are different kinds of installment loans, including auto loans, mortgages, personal loans, and student loans. Let’s further look into these different types:
Auto Loans: Auto loan is a collateral type of loan, which should be repaid in monthly installments over the set period. And if a borrower happens to default on their repayment, the car will go to the lender as collateral.
Mortgages: A mortgage is also an installment loan where the borrower places their home as collateral. Mortgages are usually repaid over a period of 15 to 30 years, where the borrowers have to make a monthly payment. In mortgages, the principal of the interest stays the same, and likewise, the monthly payment will stay the same. Similar to auto loans, if a borrower defaults on the mortgage, the property will go to the lender.
Personal Loans: Personal Loan is another type of installment loan that can be used for a wide range of purposes, whether it is to pay off medical expenses, debt consolidation, or other expenses. It can be either secured or unsecured, meaning you can either secure collateral or decide not to and depending on this, the interest rate will vary. If the borrowers decide not to secure the loan, there will be a higher interest rate.
Student Loans: Student loans are considered unsecured loans as they do not require collateral. However, to qualify for this loan, you need a good credit score. Just like any other loan, the repayment can be made over a set amount of time, and if the borrower defaults on their payment, it will affect their credit score.
Before you apply for InstallmentLoans, you need to compare the amount, interest rates, repayment terms, and other important factors from different service providers so that you end up with the best deal.
