Installment loans follow the process of letting borrowers pay off the loans in regularly scheduled payments. IBIS World says that the installment lenders industry’s market size is about 7 billion dollars. These statistics infer that these types of loans are highly preferred by people as they have the benefits of paying off the loans in parts over a stipulated time duration. This article will talk more about loans on installment.
What Are Installment Loans
Installment Loans are the sum of the amount received by the borrowers with an agreement of paying it in regular installments. The borrowers can settle the loan amount in part by paying them off at regular intervals.
It is a loan that you take out, usually in cash, which you then pay back in regular payments called installments.
They are NOT like personal lines of credit, which allow you to borrow against them and pay the balance later. This is a revolving account, rather than a loan with a set repayment date.
They are NOT like credit cards. This, like the line of credit, is a revolving account.
Types of Installment Loans
There are two types of installment loans such as secured installment loans and unsecured installment loans. These loans differ by the factor based on which the lenders approve loans to the borrowers. The loan providers will expect something to assure the repayment.
Secured Installment Loans
Secured installment loans require the borrower to pledge a collateral security. That is when a lender is not sure about their credit worthiness, they expect the borrowers to submit their properties like home, car, or jewels as a collateral. Some types of secured intsallmnet loans are stated below.
- Personal Loan
- Auto Loan
- Home Loan
- Student Loan
Unsecured Installment Loans
Unsecured Installment loans are quite common for people with good credit scores. In this case, the loan vendors will consider the previous credit history of the borrower to determine if they are capable of repaying the loans on time. Regular loan repayments and few other factors will help the lenders to make decisions on the loan approvals.
Who Offers These Kinds of Loans?
Most lenders offer some kind of installment loan, however, most banks and large financial institutions offer them for a purpose.
The typical installment loan is usually sold by banks as a personal loan, and these tend to have pretty attractive APRs.
General purpose these loans, where you get cash and have to pay back in installments, are also offered by so-called ‘payday lenders.
How Are They Different From Payday Loans?
Payday loans get their name from being cash loans that are then owed at a later date in the near future, usually corresponding with the payday of the borrower.
Payday loans require you to pay back the loan in full, plus interest, at that date.
This differs from installment loans because you pay down the balance in installments, rather than in full.
- High-interest rates. Some have interest rates that make them seem more like credit cards.
- Additional fees for late payments.
This is how they get most people:
They charge exorbitant late fees and then charge interest on those late fees,
compounding over and over until the loan gets too expensive for the borrower. At this time, they will take the debt to the collection.
How to Avoid Trouble?
- Don’t borrow from payday lenders.
“Money mart” type places are horrible places to get this kind of loan, but they could be your only option if your credit is poor.
- Don’t get caught in the trap of refinancing them over and over. It’s common for people to get underwater on installment loans, and try to refinance them for lower interest rates.
While doing that to avoid paying too much is fine, many people use that in order to compensate for the fact that they can’t afford the payments.
Credit Scores and Installment Loans
Installment loan is the wiser option for borrowers to boost their credit scores. Paying off installment loan at regular intervals can easily help credit users increase their credit scores. As installment loan is much better than credit cards and payday loans as they make them pay affordable installments.
Frequently Asked Questions
1. What is an installment loan?
Installment loan is the loan that are repaid regularly with scheduled payments.
2. What are the types of installment loan?
Secured installment loan and unsecured installment loan are the types of loans that differ with the loan approval factors. Secured installment loansrequire costumes to pledge collateral security whereas unsecured is mostly based on credit scores.
3. Is credit score important for installment loan?
The fact is that good credit scores are really beneficial for whatever loans to secure loans with low interest rates. But, installment loan is also applicable for no credit scores or low credit score category.
If you’ve been short on cash and needed to make a large purchase, installment loans may seem like an attractive option. But there’s more you need to know about installment loans before taking action on one. TheCreditPros is a credit repair service that helps customers with financial advice and provides a cheap and quality credit repair service. For more details contact us here.