Whatever the reason behind taking a loan, you should be proverbial with your own financial health before taking or applying for one. If you are capable enough to return it back on time, you can take any type of loan for yourself. It’s fundamental to understand that your credit score is a major aspect representing your financial health. Even lenders want details about your financial score before lending you an installment loan. If you take control over your credit score and make a decision accordingly, you will definitely stay away from putting yourself into a crisis. In order to play safe, one should know about the different types of installment loans and which type is best suited for your constraints. This article will help you to understand different types of installment loans online and how they work.
What is your understanding about an Installment Loan?
Installment loans are not rocket science to understand as a brief introduction is enough to clear your concept about them. They are a trouble-free form of money owing where you return the debt in regular intervals or parts (installments), e.g. monthly, bi-monthly, quarterly or annually. It is a general term that refers to both personal and commercial loans. A debt that has to be paid with a regular schedule is known as an installment loan. Each payment on an installment loan is consisting of two portions;
- Repayment of the portion of a borrowed amount
- Payment of the interest added on the borrowed amount
Both portions are determined by the length or the term of an installment loan that has been charged to the borrower by the lender.
Does every loan type falls into the Installment loan’s category?
Installment loans are usually used to consolidate other loans. These loans can be short-termed as well as long-termed. Loans can be taken to build credit, to make a big financial purchase or for a repayment of a pre-existing loan. Installment loans are suitable for persons with a low income because of the repayments. Most common types of loans that fall into the Installment Loan category are given below;
- Auto loans
- Student consolidation loan
- Home equity loan
- Personal installment loan
In order to finance the purchase of an old or a brand new car/vehicle, auto loans can be taken. They can be paid in intervals over the course of years. Lenders will give you an auto loan after authenticating your credit score from your bank. The latters are protected with a collateral down payment. The collateral loan will give a guarantee that a physical asset can be occupied by the lender in case of the borrower’s inability to repay on time. Term length for auto loans can vary between 24-48 months and can go outlying ranging from 72-84 months. Long termed installment plans lower the monthly payment, having a great add-on interest rate. Vehicles value will decrease as in auto loans consumers have to pay a 30-40% higher amount over the actual car cost. It is also known as an upside-down debt.
Before approaching a dealer, make sure you have done your research about the credit score. Also, do some research about the vehicle you are going to purchase keeping in mind the price range of different vehicles, the consistency, the insurance cost, the interest rate, etc.
Mortgages are used for property dealing. Home mortgages are popular among long-termed installment loans. Mortgages have greater amounts ranging from $100,000 or above. These amounts get repaid over the period of 20 to 40 years because of the added interest. Before seeking a mortgage consumers have to deposit down a payment of about 5-20 % of the total mortgage amount. Borrower’s financial background and credit score are reviewed by the lender to determine the interest rate on the mortgage.
Student consolidation loan
Student consolidation loans are issued to students to finance their pre-existing debts. Consolidation loans have fixed interest rates for the whole time span. There are two types of student consolidation loans, federal or private.
Can an installment loan really facilitate the reaching of my goal?
Yes, it is without a doubt. If you want to diversify your loan portfolio, an installment loan is the best to choose and apply for. If your borrowing history is consistent with a clear image, the lender will feel much comfier in lending money.