Installment loans have been around for a while, but many people still don’t know much about them. Whether you’re someone with a credit and savings background or just want to learn, you’ve come to the right place for the answers! Installment loans are more common than you think, and you may find that you already have a few! To shed some light on the subject, here’s everything you need to know about installment loans, how they work, and why you should or shouldn’t get one.
What is an installment loan?
An installment loan is an indefinite credit account that provides the borrower with a fixed amount of money to repay over a fixed term. You receive the money or item instantly after you take out the loan, and then pay it back over a few weeks or years, depending on the installment loan. You repay the loan with regular installments called installments. The borrower will usually owe the same amount of money with each payment, which may include interest.
With installment loans, you can only pay them back in installments, and you can only borrow more money after you’ve paid everything off. This is different from other types of loans such as payday loans or revolving credit account. Full of reputable companies offer these loans for an indefinite period, which can be reimbursed more flexibly. Depending on what you need, qualify for, or can afford to repay, there is a loan type for you.
Types of installment loans
If you are still not sure about installment loans or where in the real world you can find them, this list is for you. Here are the most common installment loans found in everyday life to give you a better idea.
Student loans are currently one of the most common types of installment loans. They provide a way for many students to obtain an undergraduate degree, graduate degree, and other forms of higher education. They are unique because you don’t need to start paying for them right away. Many people often don’t start paying off their student loans until much later in life.
Mortgages are a type of installment loan used by many prospective homeowners to to buy a house Easier. Mortgages help people become homeowners and in return they are required to pay back the value of the property with interest. There are many types of mortgages, but the most common need to be repaid over 15 to 30 years.
A popular installment loan for the purchase of cars and automobiles is a car loan. These loans can help individuals purchase a new or used car by generally spreading their payments over 2 to 7 years. Auto loans usually have a fixed interest rate, which should be kept in mind.
Buy now, pay later
Buy-It-Now, Late Pay, also known as point-of-sale financing, is a common loan provided by retailers. You can buy home appliances, electronics or even fashion with these loans and pay them off in few installments. Depending on the retailer or the price of the item, your payback period can range from a few weeks to several years.
Personal loans are installment loans that are not for the payment of a specific thing like a house or a car. They can be used for consolidating unpaid debts, car or home repairs, or to pay an unexpected bill. Since the scope of these loans is so wide, it can be difficult to find a good one. If you are looking for inspiration, take a look at Chrono.com for recommendations start with.
Why get an installment loan?
Like all types of credit, an installment loan has its share of advantages and disadvantages. Whether or not this is the right choice for you depends on your specific situation. Here are some pros and cons to consider with regards to these particular loans.
- Ability to cover significant costs: The advantage of installment loans is that they can help you make large purchases. Installment loans give you instant access to paying off your student loans, home or car without any waiting time.
- Refinancing possibilities: You can make it easier to repay your installment payments if your interest rates drop or if your credit score improves during your repayment period. This can either lower your monthly payment or shorten your repayment period.
- You know what to expect: The beauty of installment loans is that you know exactly what to expect for a period of a few weeks to several years. Knowing exactly how much money you need to set aside to pay off your loan can help you budget and plan more easily.
- No indefinite loan benefits: If you need to add more money to your loan or take out a new one, you probably won’t be able to do that with an installment loan. Indefinite loans require a little more financial planning to avoid any hot water.
- Potential interest rates: If your payment comes with additional interest, you will need to be at the mercy of your credit score. Lower credit scores for borrowers could mean higher interest rates, which could mean you will be paying more for your loan than expected.
- Potential long-term commitment: The repayment period of some installment loans can extend over long periods. Before taking out the loan, be sure to read the terms and conditions, and don’t go into anything if you aren’t ready for the pledge.
So this is it ! You are now up to date and know exactly what an installment loan is and how it works. Installment loans are for those who are looking to withdraw a large sum of money or an expensive asset and repay it in recurring installments. Whether it’s paying off a student loan, car loan, or refrigerator in 4 installments, these types of loans can come in handy in a pinch. As with any loan, installment loans are not perfect and can be an expensive long-term commitment. It’s important to do your research and stay informed on everything from payday loans to installment loans! Now that you’ve learned all the basics of installment loans, you’re ready to go and take on the world!