It would be hard to find an individual who hasn’t used this type of loan at least once in their lifetime. Even buying something expensive to pay off later can be considered under this tag.
How Do Installment Loans Work?
Rawpixel.com/Shutterstock: How Installment Loans Work
Banks, finance companies, credit unions, and even the stores you buy from can offer this service.
Purchasing a car from a dealership on an auto loan would be an example. You’re allowed to utilize the vehicle without paying the full amount upfront—on the agreement that you will pay it off in equal installments over a set time period.
While some lenders offer interest-free schemes for products – most institutions, including banks, charge interest as part of the installment you pay. Due to this, it’s better to pay it off in the short term with higher payments if possible, since a longer-term would also mean more pay-back.
Types of Installment Loans
dizain/Shutterstock: Categories of Installment Loans
Personal Loan – The multi-purpose option. This is easily the most common type of loan people opt for, generally to pay for house repairs or medical bills spanning 2-5 years. Luckily, it requires no collateral.
Auto Loan – As the name suggests, this one is for the ones looking for new wheels. While it can take 1-7 years to conclude paying on this loan type, you will lose your new ride if the installments stop.
Student Loan– Ah! The one graduates are perpetually grumbling about. Since these are taken when students are mostly unemployed, you’re bound to these for a good decade or so. But that’s the cost of education, right!
Mortgage Loan – These are great to buy a home or property if you have a steady income. Due to the high expense, naturally, they span longer than a decade in most cases. Being unable to pay the installments would, however, risk you losing a roof over your head.
What’s the Right Time to Get One?
Aysezgicmeli/Shutterstock: The right time
Weigh the Pros and Cons and see what works for you.
Pros
- You can pay the amount back at an affordable pace
- Fixed installments help you budget and prepare long-term
- Set periods, can help determine when you will be debt-free
Cons
- This is one-time lending. You can’t keep borrowing like in a line of credit or using a credit card
- Payments aren’t flexible since the installment amount is fixed. A credit card would give you space to withdraw to a minimum payment basis if you really need it.
- There might be origination fees involved, which could mean the lender can penalize you for settling the debt prior to the set term.
How Do I Get This Loan?
Individuals with a higher credit score are likely to get loans approved faster and get a fair interest rate.
Lending institutions use credit scores to determine how trustworthy you are. Check your score free online with these resources.
Depending on your need, and costs around the process, you can pick a lender that fits your budget and objectives. Make sure to submit correct documentation to secure approval.
Once your loan is approved, you just have to stick to the plan, kick-back, and relax.
