Finding a loan that matches your needs can be confusing as there are so many loans available in the market and so many names. As one of the most common loans in the market, we thought we’d explore installment loans and explain more about them.
What is an installment loan?
An installment loan can be known by various names which include personal loan, term loan or short-term loan. An instalment loan is very much as it sounds a loan that is repaid in installments. The borrower receives a lump sum upfront that they repay in regular fixed amounts over an agreed period of time.
Installment loan repayments are made up of the loan amount and the interest that applies to the loan. This type of loan is available from a few months through to a few years and is normally repaid on a monthly basis.
What are installment loans used for?
Installment loans can be used for a wide variety of uses and they are often marketed as specific products for the loan purpose. This can include student loans, vehicle loans, mortgages, home improvement loans and debt consolidation loans. These are available for a variety of lenders including banks, dealerships and retailers. Pawnshop loans can also be classed as an installment loans although they tend to not be as strict as other installment loans as they use items as collateral and credit checks are not required.
So is an installment loan the right type of loan for you?
There are pros and cons with every type of loan and understanding them is important so that you can assess whether an installment loan is the right loan for you.
There is a reason why installment loans are so common and that is because they are easy to manage and issue for lenders and they are simple for borrowers to understand and use. They are a flexible loan format as they can be built around anyone’s needs and they can vary from small to large sums of money and from short to long-term loan lengths.
They are easy to understand as the repayments are fixed for the term of the loan which enables the borrower to firstly work out if they can afford to repay the loan, and secondly help them budget for the repayments. Depending on your loan agreement, you may be able to repay the loan early and save some money on the interest.
However, there are some downsides to installment loans and you will need to shop around to ensure that you get a good deal not only on price but on the terms of your loan. You need to be aware that if a repayment is missed or late then there could be an impact on your credit rating if the lender takes action. Also, if you have secured your loan against an item such as your home this could be at risk if you fail to keep up the repayments.