What are installment loans and how do they work?
With so many loan types out there, you need to know how each one works before you consider it.
If you want to check out the most common type of installment loan, you may want to check out CreditNinja’s personal loans.
Understanding how installment loans work is important when you’re looking for financing, so let’s get started.
What Is An Installment Loan?
As you may have guessed, installment loans are named after the way that you pay them back – in installments. This is more convenient for borrowers with more expenses since you pay the loan off in predictable installments every month.
If a loan has a fixed monthly payment, it’s a type of installment loan. That means some personal loans and all mortgages are installment loans, so you may be familiar with how they work. If not, we go into more detail below about interest rates and repayment periods, and how the application process works.
Applying For An Installment Loan
The application process differs across lenders. Whether you’re applying online or through some other means, the lender will ask for pertinent information like your address, employment status, the purpose of the loan, and the desired loan term, if the borrower has any say in that. Your credit score is also very important when you try for a loan.
Applications are then processed by the lender and they will come back with a deal or a refusal. If you go ahead, there may be fees tied to the service. If there is, they should be small and will be deducted from your borrowed amount.
Pay attention to the interest rate too, as this dictates how much more you’ll pay when paying the loan back. The rate varies depending on how much you make, how much you spend, your loan amount, employment status, and your credit score.
Borrowers can often choose from a selection of repayment periods, which can extend from months to years. Choose wisely, so that you can afford the repayments across your chosen payment period. If you can’t repay, the money will be taken through penalties or the seizing of assets, and the payments are necessary until the total borrowed amount is covered along with interest. With personal loans, this depends on if it’s secured or unsecured.