Although “installment loan”, may not sound familiar, many people are familiar with the concept.
What is an installment mortgage? A type of loan that allows you to borrow a specific amount of money each time you take out an installment loan. This is unlike other types of revolving credits, such as credit cards, or line credit. Before you can borrow the funds you have to determine exactly how much you need.
After borrowing the funds you must repay the installment loan within a certain time period. The loan terms are set by the lender and you. Typically, payments are made monthly. However, schedules may vary. The term of a loan refers to how long a borrower will have to repay the loan. A 72-month repayment term would permit repayments for up to six years.
Every installment is known as an installment, which is the reason it’s called an Installment Loan.
Common Examples of Installment Loans
Although most lenders will offer auto loans with terms of between 12 and 96 monthly payments, some do not. Longer terms usually have lower monthly payments and higher interest rates. A 36-month loan will cost you more, but your monthly payments are lower. You’ll pay more overall to purchase a car on an 84-month loan.
A mortgage is an interest-only loan used to obtain money to buy a house. Most mortgages can be repaid in 15 to 30 years with monthly payments.
Fixed interest rates are a common feature of some mortgages. They don’t typically change. This means that both the principal and interest payments for a mortgage won’t change.
Personal loans are installment loans that can be used to consolidate debt or pay for unexpected expenses like medical bills. Personal loans are typically available for terms between 12 months and 96. They typically have a higher interest rates than other types of loans. Personal loans don’t usually require collateral like a car or house.
Benefits for installment loans
Most installment loans will have predictable payments. Fixed-interest rate loans have predictable payments. Other than any modifications to the loan add ons like insurance, the core components will remain the same each month until your loan is paid off.
An established payment schedule and amount could help you budget better for your loan payments each month. You will be able to avoid missing any payments due to unexpected changes to your debt.
Make sure your monthly payment won’t exceed your budget when you shop for an installment mortgage. If they do, you may have trouble paying your entire payment in case you need it.
Installment loans provide the security of knowing your debts can be paid off within a certain time period. You should pay off your entire debt in full after you have paid all of the required installments. The shortest possible payment term will help you pay down your debt faster.
The drawbacks of installment loans
Installment loans can be a problem.
The loan you take out is not able to be increased as you would with a credit line or credit card. To borrow more money, you will need a new loan. It is important to understand how much you can borrow when you shop for an installment mortgage.
Another drawback to installment loans is their dependence on credit. If you have had problems with credit in your past and have lower credit scores, it is likely that you will have to pay more interest than borrowers with good credit histories.
Higher interest rates can lead to larger monthly payments and higher borrowing costs. Improve your credit before you apply for an installment loan.
Installment loans may not only pay interest but can also come with additional fees and penalties. Some lenders will require that you pay application fees (often referred to as origination fees) along with credit check fees. This can raise your initial cost. You may also be subject to prepayment penalties. This is a charge you have to pay if the loan is not paid on time.
You should fully understand what you are agreeing to when you apply for an installment loan. It’s easier to search for the best installment loans for your situation if you know what you’re getting.