Installment loans are one of the most popular types of loans. They seem to be everywhere. The term “installment loan” is used very broadly and it means any loan that is repaid in equal installments every month for a certain period of time. The typical installment loan includes a fixed portion of the principal amount and interest. Basically, most loans qualify to be installment loans. They could be short-term or long-term (up to 30 years). An installment loan is often seen as an appropriate option for funding. Mortgages, car loans, consumer loans are the most common examples of installment loans.
What you need to know about installment loans:
An installment loan could be extended with or without a collateral (depending on the sum of the loan, your good credit background, the policy of your chosen lender);
The larger loans usually do require collateral and they are usually granted for a longer period of repayment;
Most installment loans have a fixed interest rate pre-determined for the entire life of the loan (along with fees and charges, though re-negotiable in certain cases);
Penalties that are applicable in various cases of breach of your installment loan agreement are fixed too.
How does an investment loan with collateral work
Mortgage loans are an example of a secured installment loan. The asset used for collateral is the real estate property intended to be purchased with the loan. It serves as a guarantee throughout the period of repayment. The same goes for car loans. The vehicle to be purchased is the lender’s guarantee that the loan will be paid off. Consumer loans or even payday loans rarely request for collateral but depending on your lender and your financial status, such request may come up.
Installment loans are often preferred for their stability and predictability. They are not so difficult to apply for if you are creditworthy. Banks or alternative lenders provide many types of installment loans to satisfy the needs of borrowers. Applying for an installment loan would include you stating the purpose of your loan – from buying a house, car, payment for repair, medical expenses or any other reason.
This would help your lender to generate the most suitable kind of installment offer. Then comes the scrutiny of your finances. Your credit score would be carefully reviewed – from your constant income, additional income to assets. A careful assessment of your other debts is made so that the lender may suggest affordable installment for your loan and a proper term. Usually, you are to be advised that a larger monthly payment would equal a smaller interest rate. While the longer your installment loan lasts, its interest rate grows.
Bad credit installment loans
Installment loans may come in handy when bad credit is involved. If you have a lot of payday loans and other outstanding debts, you may be looking for a solution before your finances collapse. Installment loans are offered in the form of debt consolidation loans to cover your existing debts. After that, you are to repay your lender monthly until it is fully paid off.
The advantage is that you actually combine different obligations under a single, bigger loan instead of having many smaller loans. It is a safer way to turn your bad credit into something you can deal with. Although the payment schedule would be longer, you may benefit from the brand new single rate that is often far better than the many others you have been paying your old debts. Bad credit installment loans may happen to be your way of improving your credit score. Your new payment plan would let you take control of your income. it also gives you a chance to pay prematurely (given no or a small penalty is provided for that).
Installment loan risks
Installment loans, regardless of their purposes, and especially the lengthy ones, carry some risks. As with any financial obligation, they involve a bit of uncertainty. If your income changes drastically for the duration of your installment or unexpected event prevents you from paying your monthly installments when they are due, some serious consequences may occur. Where the mortgage is concerned, you may lose your home. If this is your car loan, your car may be repossessed by your lender.
Failure to follow your payment schedule under installment loans for bad credit may not harm your property directly (given that no collateral is provided as a guarantee).
Who can give you an installment loan
Banks and financial unions and organizations are your standard lenders for installment loans. They are the first to mind when it comes to such serious financial commitment. They are more stringent in their policies of extending installment loans and they strongly rely on your creditability. Often, clients are rejected for their poor credit record or for having not sufficient proof of income. Cutbacks in the economy made installment loans harder to get. There is an alternative to the bank and it is called installment loan from a direct lender.
Installment loans from a direct lender require fewer documents and they are faster to request for. Direct lenders are preferred by people with less than perfect credit record. Sometimes, borrowing from direct lenders may be the only possibility available to get bad credit installment loan or to secure payment for an emergency bill.
Installment loans could be extended by banks, alternative financial companies, and direct lenders;
You should think very carefully before taking out an installment loan;
Options for enrollment and renewal should be explored just to be on the safe side;
Installment loans may serve you for larger purchases;
Regardless of their term and purpose, installment loans are a very serious financial commitment that should be addressed with care and attention;
Direct lenders may come in helpful but it is a must to assess the differences in terms, conditions, rates, and fees;
The most important thing for your installment loan is how much you should be paying off at the end;
Installment loans could be tailored towards your needs and requests and rates are often re-negotiable;
Installment loans sometimes have penalty fees in case you decide to pay off prematurely;
If installment loans are secured by collateral, there is a risk of forfeiture should you fail to comply with the arrangements with your lender.