An installment loan can be a great option if you need money urgently but don’t want to pay the high-interest rates associated with payday loans or title loans. Read on to learn more about how installment loans work and how you can apply for one.
Examples of Installment Loans
- Auto loans: An auto loan is used specifically to purchase a vehicle. A typical auto loan repayment period is 60 months. You may pay more in interest if you borrow more than 72 months.
- Personal loans: A personal loan is a type of installment loan that can be used for just about anything the borrower needs, from consolidating debt to taking a vacation. The repayment terms for a personal loan are usually much shorter than those of an auto loan, ranging from 12 to 60 months.
- Student loans: Student loans help pay for education. The repayment period for student loans typically begins after graduation.
How Do Installment Loans Work?
When you apply for an installment loan, you’re borrowing a set amount of money. You’ll then repay that loan principal, along with interest, in monthly installments. By the end of the loan term, you’re expected to repay the total amount of the loan, plus interest.
Your rates can differ depending on certain factors, such as if you have a secured or unsecured loan. With a secured loan, your rate may be lower because the lender has collateral (such as your home or car) to back up the loan. With an unsecured loan, there’s no collateral backing up the loan, so your rate may be higher.
No matter what kind of installment loan you get, make sure you understand the terms and conditions before signing on the dotted line.
Secured Installment Loans
Some installment loans require collateral. When you use an installment loan to buy a home, the home serves as collateral for the lender. Lenders reduce their risk of lending you money by using collateral as a recourse if you can’t repay them. If a borrower defaults on a mortgage, the lender can take possession of the home.
Unsecured Installment Loans
In other cases, you won’t need to put up collateral to secure your installment loan. Personal loans, for example, do not require collateral. Lenders who don’t require collateral are taking on a greater risk since they won’t have a way to recover their losses if you default.
How To Get An Installment Loan
Getting an installment loan is a straightforward process, but it’s important to take your time and choose the right loan for your needs.
First, you’ll need to decide whether you want a personal loan or a specific loan for a large purchase.
Then, you’ll need to compare different lenders to find the best terms and interest rates. Once you’ve found a few lenders that meet your needs, you can apply for the loan and get the money you need.
What Are The Benefits Of An Installment Loan?
One of the main benefits of an installment loan is that it can help you build your credit score. When you make your monthly payments on time, it shows potential lenders that you’re responsible with money and more likely to repay a future loan.
Another benefit of an installment loan is that it can be used for a variety of purposes, including consolidating debt, paying for medical expenses, or making home improvements.