In simple words, an installment loan is one that you pay back over a decided time in installments. However, there is much more to it than you think. Many people settle for installment loans because they give them the privilege to divide the payment that has to be made back in a certain time. Contrary to this, if you had to return a conventional loan, you might have to put a cut on your monthly budget. With installment loans, you can easily divide your debt and manage routine expenses easily.
Here, in this feature, we will guide you through everything about an installment loan.
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How Does an Installment Loan Work?
You must know this loan type if cliché, and you can easily get it from any financial institution. For example, if you want to buy a car but don’t have enough money to pay for it, you can visit a bank and get an installment loan. The car dealership will manage your money and set up a loan option for you. However, a part of your money will be charged an interest rate by the lender. The intriguing thing to note about an installment loan is, you get a bundle of cash on time. This means you won't have to return to the banking institution frequently.
Secondly, the installment loans have a defined term. This can range from 6 months to 20 years. Unlike any other loan, the installment loan has a set end date. However, if you settle for a long time, you will have to pay a lot of money from the term-end. However, most of such loans are fixed, so you don’t need to worry about the whole term.
Types of Installment Loans
Here, we will guide you through the most common types of installment loans:
1. Personal loans
Simply put, this is a multipurpose loan, which is used for paying medical bills, house repairs, and/or consolidating debt. These loans are unsecured, so you don’t have to put the money down. This means, if you fail to pay the loan amount on time, you will not have to offer any collateral.
2. Allotment Loans
Allotment loans for federal government employees are being issued in staggering numbers because many such people have a poor credit history. These loans can help government employees who have retired or are unable to work. After all, the government employees are entitled to several benefits, so this loan type is also offered as merit to them.
3. Student Loans
If you talk to any undergraduate, you will hear from them talking about the student loans. These loans are gaining popularity as the costs of academic institutions continue to rise. These loans can easily suffice for tuition fees, living expenses, and supplies. However, these loans are unsecured, and you can use a decade to pay off the total money.
While it takes you some time to pay off the loan amount over a specified time, this loan kind allows you to buy and live in the house at the same time. Experts say that you can pay for a mortgage home in 30 years. However, the interest rate continues to change with time.