Installment Loan definition

The commonly accepted definition of an installment loan says that it’s a type of loan which provides all the borrowed money at once and offers the repayment plan of fixed installments over the term of a few months. Installments are usually fixed amounts that don’t change in contrast to loans with a variable interest rate.

Most Americans have used some type of Installment Loan now or then. Even if they are not aware of what exactly an installment loan is.

Pay attention to the following features:

  • You choose how much you need and borrow a set amount of money.
  • Installment loan terms differ by scheduled monthly payments over a fixed period of time.
  • The terms can allow repayment over a few months or years.
  • Each payment is known as an installment.

Common examples of installment loans

All loan types which are repaid in equal installments belong to the group of Installment Loans. They are Personal Loans, Car Loans, Mortgages, Unsecured Loans, Student Loans, etc. Let’s look into each type in details:

Personal loans

Personal loans go in large amounts up to $35,000 and can be used for any personal needs such as debt consolidation, medical bills, car repair, and more. Personal loan terms vary from 1 to 7 years. The interest rates may be high but you can also find low-interest personal loans if your credit score is good.

Car loans

Car loans have 12 months – 6 years repayment terms. The longer the term is the lower monthly repayments you’ll be charged. Still, rates may be higher and eventually you’ll pay more total loan cost.

Mortgages

A mortgage is used to buy a house. Their repayment terms range from 15 to 30 years. Some of them have fixed interest rates that don’t change.

Student Loans

Student loans are used to pay for the cost of education. They differ from other installment loans by one thing – the opportunity to defer your payments if you are unemployed.

Unsecured Loans

Unsecured loans provide money with no collateral required. If you have fair credit, you can apply to a bank or credit union. But if your score is below average – your options may be limited to online Payday Loans.

Benefits of installment loans

  • Scheduled predictable payments due to fixed interest rates;
  • Easy to budget for Installment loan consistent monthly payments;
  • Ability to improve your credit score with no late payments on an installment loan;
  • Ability to apply for Installment Loan Refinancing opportunities;
  • Availability for bad credit as well as no credit borrowers.

Applying for an installment loan online, plan your monthly payments altogether with any other emergency bills and expenses so that pay off the debt in full on time.

The shorter terms you apply for, the faster and with less interest you get out of debt.

Drawbacks of installment loans

  • You must decide what amount to borrow before you apply for an Installment Loan and you won’t be able to change it afterward;
  • Long repayment terms;
  • Sometimes you can be charged of early loan prepayment fees;
  • High interest rates for borrowers with bad credit;
  • Origination fees for another Personal loan processing;
  • Additional fees may be required - application fee, credit check fee and more;
  • Sometimes prepayment penalties are charged.

Before applying for an installment loan, check all rates and terms stated in the loan agreement. Make sure you understand the Installment loan definition and meaning. Study how they work and shop for the best offer.

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