Some installment loans require collateral and some do not. Mortgage and auto loans are secured or secured loans. In these cases, the property and the car are kept as collateral. The personal loans usually do not require any collateral. However, in these cases, the borrower’s creditworthiness is checked thoroughly. His income status is also taken into account. Generally, unsecured loans have a higher interest rate compared to secured loans because nothing of value is available to the lender should the borrower default on the loan.
The procedure for applying for and processing an installment loan
The application and processing of installment loans does not differ significantly from the other types of loan. The borrower can apply for loans online or at the lender’s branch. The form fills out a part with important details of the borrower. The lender discusses issues such as down payment, terms, ancillary costs, fees and a payment schedule, etc. The borrower also sometimes has to make a down payment. The lender will also check the borrower’s creditworthiness prior to the loan sanction. The applicant’s employment data and sources of income are also carefully checked. Usually the lender charges a processing fee.
Once the loan is sanctioned, the borrower must repay the amount in fixed monthly amounts. However, in some cases, they can opt to repay the loan early. However, not every company that offers an installment loan has penalty-free prepayment options available. This is an issue that you need to clarify with the lender at the time of applying for the loan.
- Simple application process – For customers, installment loans can be applied for online and in person. Regardless of the type of application, the process is smooth and straightforward. Along with completing the application form, the customer must provide proper loan processing documents. Generally, loan processing and sanctioning are immediate until and unless there are significant issues.
- Borrow a big one be – If you are planning to take out a large loan amount, installment loans are your best option. The money can be used to buy something expensive or for other personal purposes.
- Fixed rates with predictable monthly repayments – That is probably the most important advantage of an installment loan. The interest rate at the beginning of the loan is maintained throughout the loan term. If interest rates fluctuate, the borrower may have to make more monthly repayments. With fixed interest rates, the borrower knows exactly what needs to be paid back each month.
- Repayment periods are usually longer – With a longer term of a loan, you have enough time to repay the loan. Since the loan runs over a longer period of time, the monthly repayment installments tend to be low and manageable. Remember, the longer the term can mean more interest, so try to pay quickly.
- Credit rating is less important – Installment loans are popular with people who do not have a very good credit history and history. Despite a low credit rating, you can still get an installment loan without too much difficulty.
When you need quick cash, there is no better alternative than applying for an installment loan. Even with poor credit ratings, they can be an option for many.
Disadvantages of installment loans
- For the fixed rate loan, the borrower may have to pay a higher interest rate. With a mortgage loan, this can be disadvantageous.
- This type of loan puts the borrower on a long term financial commitment. With long-term loans, this can be a hassle. If the borrower suffers a slump in income or finds himself in financial distress, repayment on time can be a challenge for him. This can also lead to the collateral forfeiture.
- If the lender is skeptical of the borrower’s ability to repay, a high interest rate is offered. The borrower has no choice but to accept it.
Term of an installment loan
The term of an installment loan can vary widely. It depends on what type of loan you are applying for. Personal loans are usually offered for short terms. It can take 1-5 years. Auto loans usually have a longer term. Mortgage loans can have an extended term, which in some cases can be up to 30 years.
Installment loans can be convenient in many cases. These loans make it easier to repay the amount borrowed. You know exactly how much you have to pay each month and you can plan your finances accordingly. However, factors such as the interest rate, prepayment fees and down payment need to be carefully analyzed. Top notch lenders clarify these issues when applying for such loans.