5 Things You Should Know About Installment Loans

5 Things You Should Know About Installment Loans

There are different types of consumer loans one can choose from, depending on repayment terms, fees, finance charges, among others. Installment loans fall under personal loans. They are borrowed by individuals to finance short financial needs, typically during an emergency period when expenditures are just beyond the reach of  a family’s budget. These loans differ from other loans, including advance loans, payday loans, and bank overdraft fees in several ways. Let's check some of the facts.

#1: How do installment loans work?

Installments loans often get borrowed to cover a deficit or to cater for unexpected expenses. Getting a personal loan is a way of securing extra money to finance medical care, car repair, home maintenance, and other expenses. It helps individuals meet their obligations on time. Installment loans lie under personal loans.

#2: The difference between installment loans and other types of loans

An installment loan is different from a payday loan and other types of loans. The only similarity about these loans is that they involve small amounts of money. Payday loans need to be paid at an agreed time on a lump sum, mostly done on payday. Installments loans are paid in bits, as agreed between the lender and the borrower. The borrower pays small installments over some time until when they clear the loan. With installment loans, you can agree with the lender to pay in several months, and you can pay early to avoid penalties. Payday loans usually have a fixed charge.

#3: Types of installment loans

There are different types of installment loans you can choose from, depending on your needs. They come in two categories, the secured installment loans, and the unsecured loans. For secured loans, you must issue security against the loan, whether an asset or a property. For unsecured loans, they require no collateral. Some of the installment loans include the below:

• Personal loans: These loans get used for personal expenses such as clearing medical bills, debt consolidation, wedding, home maintenance, or other costs. You can get these through banks or trade unions. 
• Auto loans: These types of loans are to purchase a motor vehicle, and the car acts as the collateral. They have low-interest rates compared to unsecured loans.
• Mortgages: these are secured installment loans used to purchase properties. The house can get repossessed if you fail to pay the loan.
• Student loans: they are used to pay for higher education, and students must pay them in installments once they secure employment. Federal governments mostly offer them.

#4: How do installment loans work?

To get any of the installment loans, you need to make an application to the lending institution. The lender goes through your application, and if approved, you get the money and pay back according to the agreed installments. There are also finance charges charged upon approval. During approval, the lender checks on several things, including your ability to pay the loan, credit status, income, and other factors. These factors give the lender a perspective on how you will pay the loan and how they will recover their money if you fail to deliver. You need to understand the loan options and the requirements before choosing your type of loan.

#5: What are the benefits of installment loans?

There are several benefits to acquiring installment loans. Some of these benefits include:

• Predictable monthly payments: With such loans, you understand beforehand what you are supposed to pay every month and how long the installments will take to clear the loan.
• Higher credit limits: Compared to cards, bank overdraft fees, and payday loans, installment loans offer higher credit limits, which are payable over a long period. They are best when making a large purchase.
• Fixed interest rates: Installment loans have fixed rates. The loan will get subdivided into several equal parts, according to months with no hidden charges. Early payments make you avoid some rates.

If you are in a tight situation and need a considerable amount of money to pay in installments, consider taking an installment loan. They are more convenient than credit cards and bank overdraft fees and make you have peace of mind since you will know when to pay and how long. Choose a reputable lender, complete your application, and get your funds if approved.