An installment loan is a broader term used to describe loans where you need a large amount of money, and the repayment of the loan is made through equated installments. To make things easy for you, this article covers different aspects of an online installment loan.
Types of Installment Loans
An installment loan is generally categorized as secured and unsecured loans. A secured installment loan requires the borrower to provide some collateral which can be someone’s property or asset.
An unsecured type of installment loan does not have the collateral condition. Unsecured loans are more likely to have a higher rate of interest due to the risks involved. Here are some common types of an online installment loan:
Personal Loans
Personal loans are used for various purposes, including home renovation, debt consolidation, medical expenses, wedding, or any other purpose. You can find these loans offered by credit unions, banks, financial institutions, and private lenders. The minimum and maximum loan amount and the interest rates vary with lenders. And, the annual percentage rate depends on your credit score. If your credit score is right, you can ask for a lower interest rate.
Auto Loans
Car loans are generally taken for buying a vehicle. In this installment loan, the car acts as collateral. If you cannot make payments towards your loan, you stand at risk of losing ownership. Auto loans fall into the category of secured loans, and hence, the interest rate is lower than unsecured loans.
You can get this loan from banks, financial institutions, and private lenders. The rate of interest is determined by the national average, which is 5.27% for 60 months. It also depends on factors like your credit score, term length, and the car’s age.
Mortgages
These installment loans help in financing the purchase of home or property. It is similar to an auto loan where the purchased property acts as collateral. The APR of home loans is lower than unsecured loans. If you fail to make timely payments, the lender might take the home from you.
Benefits of Installment Loans
Predictable Monthly Payments– One of the advantages of an online installment loan is knowing how much you have to pay each month. The monthly payments do not change for the entire loan period. When you take an installment loan, your lender asks about your preferences for the loan repayment period and calculates the monthly payment accordingly.
The monthly payment you make covers the repayment of part principal and interest amount. If you opt for a short repayment period, the monthly installment would be high. If you want affordable monthly payments, you need to ask for a longer repayment period.
Fixed Interest Rate– Online installment loans have a fixed interest rate, which allows predictability. Some lenders also offer variable interest options. You can opt for a variable interest option if you plan to repay the loan in a shorter period. This will protect you from a potential increase in the interest rate in the future.
These are some of the crucial things about online installment loans. These loans are better than plastic card loans, which have a higher rate of interest. No matter how big or small the installment loan, make sure you make payments on time.