Installment Loans – Facts You Should Know
When you’re in a financial problem, taking a loan seems to be an easy solution. But you’ve heard that there are various types of loans, and that confuses you. After all, which loan is the most suitable to you? And what is an online installment loan? If you’re wondering, here are things you might be interested to know.
What is an Installment Loan?
Financial expert, Nick Gabriel explains that an installment loan is practically any loan that comes in a set amount, which you have to repay with interest and fees in regular payments. Usually you have to pay once a month; but some lenders even allow bi-weekly or weekly repayments. Personal loans, car loans and student loans are all basically installment loans. However, most loans that lenders call as installment loans are a kind of short-term loan, similar to a payday loan.
Types of Installment Loans
There are two main categories installment loans fall into: secured and unsecured.
A secured loan needs collateral – an asset or property – as security against the borrowed amount. If you fail to repay the loan, the lender mostly has the right to acquire the ownership of the collateral.
Unsecured loans are those which don’t need collateral. Personal loans are a kind of installment loans that are usually unsecured.
Most common types of installment loans are as follows:
Personal Loans
Personal loans are installment loans that can be used for various purposes, such as medical expenses, wedding, home renovation or debt consolidation. Traditional financial organizations like banks and credit unions offer personal loans. Nowadays, online lenders that are known for fast transactions too offer them. Personal loans are offered in a wide array of amounts, and even the interest rate can vary to a great extent depending on your credit.
Car Loans
Car loans can be taken while buying a car. Here the car to be bought is used as collateral. Ownership of your car is at stake if you fail to make repayment. However, this leads to much lower interest rates than that on unsecured loans. For instance, during the 4th quarter of 2019, the average interest rate on a 48-month new vehicle loan was 5.45 percent, as per the Federal Reserve.
Mortgages
Mortgages are secured installment loans usually taken to buy a house, Nick explains. Here your home is used as collateral, similar to a car loan, and due to this mortgage, interest rates are lower than that of unsecured loans. But this also means that if you fail to repay the installments, you are at risk to lose your home to the lender.
Student Loans
Student loans are installment loans that help one financially for higher education. It can be issued by a private lender or even the federal government. Terms, interest rates, option for repayments and forgiveness programs vary greatly depending on whether they are taken from private lenders or the federal government, Nick informs.
Payday Loans
Payday loans are a type of installment loan which are meant to help borrowers financially until their next paycheck. However, they have exorbitant interest rates and fees, and so, they are infamous to pull consumers into the trap of debt.
Pros and Cons of Installment Loans
Financial experts at slickcashloan.com bring it to consumers’ notice that installment loans are not good or bad on their own. Their goodness or badness depends on how you use them, your current financial status, your credit and borrowing requirements.
Pros
- Fixed interest rates
- You can borrow more money with installment loans than with a credit card
- Monthly payments are predictable so, budgeting is easier for you
Cons
- Installment loans as such offer no flexibility since if you need more money after taking the loan, you may have to look for other options
You can make good use of installment loans if you plan wisely. It all depends on your financial strategies how you can turn it to a beneficial option during a financial crisis.
