Each and every day, people around the world need money for various purposes. In order to meet these needs, they take out loans. A loan allows people to accomplish what they want or need without having the money at the time. Different lenders offer different types of loans to meet different needs, but one that sticks out is an installment loan! The most accessible types of installment loans are those you can apply for online, or those that can be secured through collateral.
While there are many complicated loan types, an installment loan is as straightforward as any. This article aims to share vital tips on the most accessible types of installment loans. Read on to find out more.
Basic Features of Installment Loans
An installment loan is a loan that is repaid over time in regular installments. The payments can be made weekly, monthly, or yearly, based on the contract signed. For instance, if you get an installment loan and the payment period is two years, you have to pay up in two years. Each payment is a specified and agreed-upon percentage of the loan’s principal and interest.
Installment loans often have a preset interest rate. This implies that you will be paying the same interest on the loan throughout the duration of paying the loan. This is a great advantage, as it helps borrowers know the total cost. This helps them plan budgets better.
Installment loans can be separated into two categories: secured (collateral) or unsecured (non-collateral). A secured loan is a loan type where the borrower places an object of personal ownership with the lender against the loan. This is done so that if the loan is not paid, there is an object the lender can claim to cover up for the money lost. This is why they are called “secured” loans and are mainly employed when the borrower has poor credit.
Unsecured loans are the direct opposite of secured loans; they do not need any property placed against the loan. Lenders get their money back safely by charging higher interest rates. If you default on payments of this loan type, lenders are within their rights to take you to court and get a property of value (or more) of yours if they win.
Types of Installment Loans
Below are the most accessible types of installment loans and some reasons why you should take advantage of them:
- Mortgages
- Personal loans
- Auto loans
Mortgages
A mortgage is simply a loan you take to purchase a home. It is standard practice for potential home buyers to use mortgages to buy the home of their dreams. This is what makes them one of the most accessible loan types, however, they are expensive. Paying back a mortgage is akin to paying rent for the house you live in to a landlord, who is the lender.
Mortgages are paid back to the lender in installments, with a fixed interest rate. Failure to pay the mortgage can lead to lenders forcibly ejecting you from the house and selling it to someone else. Mortgages are basically secured loans; the house becomes the collateral.
Since mortgages are much bigger, they take a longer time to get paid than, say, auto loans and no-credit-check loans. A typical payment for a mortgage could take as long as 30 years. As an example, you could pay a thousand dollars per month for the next 30 years, which totals six hundred thousand dollars.
Personal Loans
Considering the volume of engagement, personal loans (also called payday loans) are much more accessible than mortgages and auto loans. A personal loan is a loan type that is paid for in a short time, about 3 to 5 years (compared to auto loans and mortgages), and can be paid in less than six months.
Personal loans are also smaller, ranging from $50 to over $500. These types of loans are used for issues such as medical expenses and much-needed buys. The wide range of the costs of personal loans and the fact that they are not secured is why they are the most accessible loan types.
Personal loan borrowers do not need to put up collateral. If they default on payment, all that is affected is their credit score.
Given that personal loans are repaid as soon as possible, they often come with higher interest rates. Hence, there are many lenders and loan companies looking to offer personal loans as it is a quick money recoup for them. People with poor credit loans also take advantage of these types of loans.
Auto Loans
Auto loans are installment loans that can be paid within a year and for as long as eight years. Payments for auto loans are usually monthly. While it would take a longer time to pay an eight-year loan, along with a lower interest rate, one would pay more in total in eight years. A shorter time (like three years) would have a shorter payment time and higher interest rate but would pay less in total compared to an eight-year loan.
Auto loans are always secured loans. The car is usually the object of value, which means that when one defaults on an auto loan, the car is taken back.
Conclusion
Installment loans are suitable for many things, such as paying for medical expenses, starting school as soon as possible after a long break, and buying a house. Making payments on time is important as it would improve your credit and stand you in good stead for another loan in the future. You never know when you will need one!
