Anyone who is looking to procure a loan, installment loans are seemingly one of the most common offerings. Installment loans are most popular among the age group of 25-44 years, and one can see it in the form of mortgages, personal loans, student loans, auto loans, and more. In this post, we will help decode the concept of installment loans and check whether they are a smart move in finances to make.
What is an installment loan anyway?
Simply put, an installment loan is any non-secured credit that is given to a borrower, and the payback is expected in equal amounts over a specified period. The payable sum, which is the principal, accrued interest along with some other fees as charged by the creditor. Typically, a debtor pays back the money on a monthly basis, but in some cases, one might also pay weekly or in bi-weekly mode. Car loans, mortgages, personal loans are essentially installment loans. They are looked at a potent financial tool as one can lend for almost any purpose ranging from renovating a house or redoing your backyard or for any personal needs where you might require some urgent cash. According to Personal Money Network, installment loans are a great way to consolidate debt. However, one shouldn’t confuse installment loans with payday loans, which are usually given on a short term basis and doesn’t involve any monthly payment.
Installment loans are typically offered in a significant amount, and the repayment period is comparatively longer than payday loans. Also, installment loans attract a hefty rate of interest compared to other loan types. Although there seems to be no restriction from the creditor side as to how one would spend the money given in the shape of an installment loan, one should restrict himself from taking installment loans unless he needs cash urgently owing to the predatory rates of interest. Typically, you might apply for an installment loan to cover needs like:
- Medical expenses
- Automobile repair
- House renovation
- Improve credit scores
- Pay any overdue utility bill
Why do people prefer Installment Loans?
People tend to go for installment loans due to multiple factors:
Easy application method –Instalment Loans are easy to apply. Firstly, the paperwork is not too much, and if you have a good credit score, chances are a financial organization can sanction your application under a week or so.
Less stringent proceedings– The proceedings on an installment loan are less stringent compared to other loan types. One can get his application approved even with a low or negative credit rating. Nevertheless, one needs to show the lending authority that you are in a position to pay them back as agreed on.
Flexibility– With installment loans, one can be really flexible in terms of the amount they apply for or the creditor they choose. However, the income criteria the area of staying; such factors can impact the interest that one is charged on his borrowing.
Values and terms– When it comes to installment loans, the terms and the amount of the borrowing and other associated conditions are most likely to be decided by the creditor and local laws.
Contrary to what most would like to believe, installment loans aren’t only for those who have a bad or low credit score. You see, installment lending is one such concept that was designed, keeping in mind the need for individuals with or without a good credit rating. One needs to be cautious while running a Google search since there are many instances of unscrupulous lenders disguising payday loans and installment loans. This is because payday loans, similar to installment loans, attract heavy interest rates, and such matching characteristics can lure an individual into an uncomfortable debt cycle. Also, at times, one might be amazed when approaching creditors who give already nod to your request, without even moving a muscle. In such a situation, one should look into the offer carefully. Chances are you are dealing with moneylenders who have no serious consideration of your situation. By all means, any credible creditor will go forward with the primary scrutinization of your lending request to ascertain your eligibility along with assessing your repayment capacity before they can approve your sanction request. So, before you put down your signature on the agreement, ask your creditor. What would be the consequence if you fail to pay it back? Is there a rollover credit option? If not, then consider a different creditor since this is how one gets pulled into the vicious cycle of debt.
Certain universal pints come into play while a credit authority or a lending institution mull over your installment loan application. They include the following:
- Income proof–One of the primary factors for getting your installment loan application sanctioned, is your income proof. It doesn’t matter whether you have a nine-to-five job or run a business. One needs to declare a source of revenue which can be in the shape of a full time or a part-time job or just about any business, small or big.
- An active account–While having an active bank account always helps when one disburses the loan amount, but that isn’t really mandatory in case of an installment loan. If you do not have a bank account, you might as well receive the loan in the form of cash from any nearby branch of the financial institution.
- Government-issued ID: No matter how big or small your creditor is, they will always ask for a valid govt-issued ID. This is chiefly to help ascertain one’s age before any disbursal is made. To stand eligible for an installment loan sanction, one needs to be at least 18 years or more.
- Nationality: One needs to be a legal resident of the country where one is applying for an installment loan.
Having said all that, it is always advisable that you look into the details carefully and be in command of your own financial standing and your repayment capacity before you decide on taking an installment loan. Such an approach shall better your chances to make your loan a much affordable one, pertaining to a lower rate of interest and other factors.