You might have heard of installment loans, but what are they? If you need money to buy something big, like a car, then an installment loan may be perfect for you. But installment loans are not just for buying cars or a house. You can use them to buy anything that you want to, including holidays and vacations as well as starting college or university.
An installment loan, also known as an auto or personal installment loan, is a type of loan that has multiple payments. The meaning of installments is that the loan is based on recurring payments for the duration of the loan.
This differs from most other loans, such as payday loans which have one repayment at the end. With an installment loan you make monthly payments instead. This is a great way to afford the things you want, without being in debt for too long.
This also applies if you want to start going to college or university, but can’t afford the tuition fees up front with one payment. With an installment loan you only have to pay monthly and not worry about saving up for it all at once.
Personal installment loans can be structured in a variety of ways, depending on the borrower’s needs and situation. Personal installment loans frequently have a fixed interest rate and time period with regular, pre-determined payments over the life of the loan.
Are installment loans secured or unsecured?
Installment loans are typically unsecured loans. This means that borrowers don’t have to put up collateral for these types of loans. To pay off the loan, the borrower will make regular, pre-determined payments over the life of the loan.
There are however some types of installment loans that do have a collateral attached to them. If you take out an auto or motorcycle loan, for example, the lender can repossess the vehicle if you don’t make your payments.
How much can I borrow?
An installment loan can typically be any amount but may only go as high as your state allows you to borrow in terms of an unsecured loan. In California, for example, you can borrow up to $50,000.
How long do I have to repay the loan?
This is usually based on the finance agreement and the interest rate that you will be charged. Installment loans typically range from 6–60 months or more. If it’s a shorter term then there probably won’t be anything to pay off at the end of the loan. Instead you will pay interest only on the amount borrowed.
What does it mean if an installment loan is fixed?
An installment that has a fixed interest rate means the rate stays the same, so the borrower has certainty in their rates. You can rest easy with monthly payments and know exactly how much they’ll be.
On top of lower interest rates and predictable installments, the fixed interest on a personal installment loan also lets you better budget for future expenditures and monitor your finances more efficiently than if you had an adjustable rate or variable payback.
This is really smart especially if you’ve discovered some unexpected bumps in your financial situation that put paying off credits at risk or think there’s any chance of getting laid off from work.
A fixed interest rate can mean that you get a lower interest rate. The downside to this is that if the market drops, the interest goes up, but your payments (and interest) stay the same. This means that it could take you longer to pay back the loan and you may even be paying more for it. With a variable interest rates, the payments are flexible and may go up or down depending on how much the market moves.