The term ‘Installment loan’ itself reveals the definition, loans that are paid in monthly EMIs. It consists of personal and commercial loans as well that depends on your requirements for what purpose you need the cash. The monthly returns include a fixed part of the repayment of the loan amount along with interest. The major variables on which the fixed loan payments restrict are the term or duration of the loan, rate of interest, and the amount you have borrowed. Some of the installment loans are auto loans, mortgage loans, and personal loans.
For example, if you are thinking of borrowing $20,000 with the interest rate of 8.99 % and that too for the 60-months of term, then you would have to pay $415 per month for 5 years. The loans are divided into two terms that depend on the rate of interest. One is variable-rate loans, in which the rate of interest may vary throughout the term of the loan.
The other one is fixed-rate loans and almost all the installment loans are fixed, in other words, the rate of interest charged over the term of the loan is fixed at the time of borrowing.
Installment loans are also categorized on the basis of collateral as some loans require your assets to be put as a security of the borrowed amount, which is basically long-term loans like a mortgage and some are without collateral for short-term personal loans. Though, the rate of interest also varies with which loan you are borrowing as the cost of the non-collateral loans is higher than collateral ones on the basis of risk factor.
The first thing to borrow installment loan is you have to clarify the purpose of the loan as if you desire to buy any vehicle then it must be clear that which type of loan is preferable for you. This can be discussed with lenders for better options.
For example; if you want to borrow $8000 to finance a car then your lender will suggest to you that after how much down payment you’ll get a lower rate loan according to the fixed monthly EMIs and term of the loan. It would be a car loan that is secured by the vehicle that you are purchasing and if you get default payment then your car is at risk.
It depends on the fulfillment of requirements, that from where you can get the installment loan. If you have a good credit score or can secure your loan then banks are open for you for a long-term loan but with bad credit history, too without security, one can borrow only a small amount from other moneylenders.
Benefits of Installment loans:
- Installment loans are manageable and can simply be tailored to your particular requirements in terms of the amount you need and the length of time that best suits your ability to refund the loan.
- It lets you acquire funding at a considerably lower rate of interest than what is normally available with twirling credit financing, like credit cards.
- With this, you can keep cash on hand for any purpose rather than making a huge cash expenditure.
As the coin has two sides, everything comes with some drawbacks too. So here are some:
- For longer-term loans, a downside is you might have to make refunds at a high cost as compared to the usual market rate. You may be able to refinance the loan at the current lower interest rate.
- The other disadvantage of these loans originates from the borrower being clasped into a long-term financial commitment.
- As circumstances may occur when you feel inadequate of adhering to the scheduled payments, that may result in risking default, and possible forfeiture of any guarantee used to secure the loan.
What things you should analyze before applying for any kind of installment loans USA?
- Check your FICO score and do something to improve it if it is bad.
- Analyze your monthly earnings and expenses.
- Before choosing a lender, compare the rates first.
- Borrow the only amount that is required as per your income otherwise the risk of getting default gets increased.