An installment loan is a loan taken by a consumer that is repaid in installments over a period of time. This is a loan taken by an individual, which would have a fixed interest rate and requires monthly payments till the loan is repaid.
What is it used for?
Installment loans are ideal for consumers as they can buy something even if they do not have the cash needed for it. A motorcycle loan, student loan, car loan, personal loan, or even a mortgage for a home loan – all these are types of installment loans.
Each of these loans is different and has its own interest rates and other charges and expenses. The concept behind all these is the same. Even without having cash you can invest money or buy a product. Then you can repay the loan taken through monthly payment in form of the monthly installments.
For example, if you want a personal loan for maybe a major purchase. You need a loan of $25,000 (the principal). You are ready to repay the loan over a period of 5 years (loan term). Let’s assume the interest rate you are charged is 6.99% (Interest rate). Based on this information, you can calculate your monthly installment. In this case, your monthly installment would be $495. So, for a period of 5 years, you need to pay $495 every month for a total of 60 months. This means you would be paying $29,700 to the lender in return for taking a loan of $25,000. The difference of $4,700 is the interest the lender earns for giving you the loan.
Who will give you an installment loan?
You can get an installment loan from your bank or local credit union. If you already have a relationship with them, like a savings account, you can get a loan easily. There are other private agencies that would give you a loan. You can shop around so that you can get the best terms and interest rate.
How to get an installment loan?
The first thing as in any loan is to check your credit score. The credit score tells the lender how prompt you are in repayment of loans. It also tells the lender if they can trust you and grant the loan. A high credit score will help you get a loan easily. If you have a low credit score, you can get a loan, but the terms and conditions will not be in your favor.
Contact the lender of your choice and submit your loan application. In the loan application, you need to list our your personal details and details of your employment and income. The income you earn is used by the lender to determine if you can pay the monthly installments. You also have to mention details of assets owned by you and include any loans you have taken that are yet to be paid.
Based on the information provided, you would have to submit documents as evidence for this information. If required, you may be called for a personal discussion with the lender before they sanction the loan.
In case of a mortgage or car loan, the ownership of the home/car will be transferred to you only after you repay the loan completely.
An installment loan is taken for a particular duration and every month an installment has to be paid until the loan is completely repaid.