Everything You Need to Know About Installment Loans
An installment loan may not be something you commonly hear, but the concept is something most people have encountered before. In fact, you’ve probably taken out some form of installment loan before. But what exactly is it? Well, this article will cover the basics of an installment loan to help give you a better picture of it.
What Is an Installment Loan?
An installment loan is more of an umbrella term. It refers to a type of loan in which the borrower needs to pay a fixed amount of money in regularly scheduled installments. These payments often include a principal amount and added interest.
Installment loans are typically paid over a set period. The period and the amount to be paid for each installment will depend on the terms agreed upon by the lender and the borrower. These payments are often paid monthly; however, some installment loans may have varying payment schedules.
What Are the Benefits of an Installment Loan?
If the installment loan has a fixed interest rate, the amount of money you’ll be paying for each installment will remain the same throughout the loan period. This makes the payments more predictable, which can help borrowers with their monthly budgeting. It also decreases the chances of missing payments since you’ll have a set amount and set schedule each month.
With an installment loan, you also have the comfort of knowing when you will pay off your debt. And if you go with an installment loan with a shorter payment term, you can escape debt faster and perhaps pay less interest.
What Are the Drawbacks of an Installment Loan?
While there are benefits to applying for an installment loan, there are also some drawbacks. For example, once the loan is taken out, you can no longer borrow more money for that loan. If you need additional money, you would have to apply for a new loan.
Another downside to installment loans is that the loan’s terms and interest rates are often based on the borrower’s credit. This means that if your credit score isn’t that good, you may end up paying higher interest rates.
Types of Installment Loans
Since an installment loan is more of an umbrella term, there are different types of it. Some of the more common types include personal loans, mortgages, and auto loans.
1. Personal Loans
A personal loan is one of the most common types of installment loans. You can take out a personal loan for whatever purpose, whether for medical bills or home remodeling. The great thing about personal loans is that you don’t have to put up anything as collateral when applying for one. However, the downside is that the interest rates are also often higher than other types of loans.
This type of installment loan is often used for financing a house. Since this would mean borrowing a large amount of money, the payment periods are much longer, often lasting 15 to 30 years.
3. Auto Loans
Auto loans are used for financing a vehicle. They are often repaid over a period of 12 to 96 months. However, with longer terms, you can expect lower monthly payments with higher interest rates. So, it’s important to find the right balance when taking out an auto loan.
Installments loans are loans that allow a borrower to pay off their debt through regularly scheduled installments. Some common types of installment loans include personal loans, mortgages, and auto loans. Installment loans are great due to their predictable repayment. However, the credit requirements may be a downside for some borrowers.
Get the financing you need with the help of Mid-Town Finance Company - Huntsville. We offer different types of installment loans in the greater Huntsville area and never turn an applicant away. Our business makes straightforward, fair, honest loans and believes you can’t always judge a book by its cover when it comes to past credit. Please call to inquire about a loan today.