Wednesday, March 8, 2017

What is an Installment Loan and How Does It Work?

When you need to make a large purchase and do not have the cash on hand or a line of credit to do so, an installment loan is a financing option to consider. 

An installment loan may be offered through a credit union, bank or a private lender. Understanding what an installment loan is and how it works can help you to decide if this type of financing is right for your situation.

Fixed Payments

When you take an installment loan, you are agreeing to make fixed payments for a specific period of time. Each of the payments is due on a specific date, such as the first Monday of the month or the 15th day of the month. 

The fixed payment includes the portion of the principal of the loan and the interest that you have accrued on the principal. Each payment that you make on an installment loan reduces the amount that you owe on the principal.

Interest Rates

Interest rates on installment loans are usually fixed at the point in time that you take the loan. Some companies, such as Las Vegas Finance, know that the interest rate that you get may differ from what another applicant would get even on the same principal. 

Your interest rate will be calculated based upon your credit score. If you have a low credit score, you may have a high interest rate.

Secured Versus Unsecured Installment Loans

A secured installment loan is tied to a piece of property as collateral. One example is a mortgage loan. A fixed mortgage is an installment loan that uses the house as the collateral. An unsecured installment loan does not use any collateral. 

These loans are sometimes called personal loans and could be used for a leisure or personal purchase, such as buying a diamond engagement ring.

Benefits of Getting an Installment Loan

An installment loan makes it easy for you to plan your monthly expenses. With excellent credit and property to secure the loan, you may enjoy a low interest rate. 

ome installment loans, such as mortgages, have tax-deductible interest. On-time payments on an installment loan can also help you to build your credit score.

An installment loan provides you with a set amount of debt to repay each month. The predictability of the loan's payments makes this a convenient choice for many people. 

Before signing your name on the dotted line, be sure that you understand all of your obligations as the borrower on an installment loan.

1 comment:

  1. In addition to installment loans, you have the option of a short term loan. Be warned though that the repayment period is generally much shorter but they work in the same way as installment loans. In some countries, they cost more. Typically in AUS you pay interest at around $24 AUD for every $100


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