Some installment loans require collateral, while others do not. Mortgages and auto loans are secured or guaranteed loans. The property and the car are kept as collateral in these cases. Personal loans generally do not require any collateral. However, in these cases, the borrower’s credit history is assessed thoroughly. His income status is also taken into account. Generally, unsecured loans have a higher rate of interest than secured loans because there is nothing of value available to the lender in the event the borrower defaults on the loan.
The installment loan application and treatment procedure
The application and processing of installment loans is not much different from other types of loans. The borrower can apply for the loans online or at the agency of the lending company. The form fills a part with the vital details of the borrower is essential. The lender discusses such topics as down payment, terms, additional charges, fees and a payment schedule, etc. Sometimes the borrower also has to make a down payment. The lender will also assess the creditworthiness of the borrower before sanctioning the loan. The job details of the applicant and his sources of income are also carefully assessed. Usually, the entity offering the loan charges a processing fee.
Once the loan is sanctioned, the borrower is required to repay the amount in fixed monthly amounts. However, they can also choose to prepay the loan in some cases. However, not every entity offering an installment loan keeps prepayment options without penalty. This is a question that you should check with the lender when applying for the loan.
- Easy application process – For the convenience of clients, installment loans can be applied online and in person. Whatever the mode of application, the process is smooth and simple. In addition to filling out the application form, the client will need to provide appropriate documentation on the processing of the loan. Typically, loan processing and sanctioning takes place instantly until there are significant issues.
- Borrow a big amount – If you plan to borrow a large sum in the form of a loan, the installment loan appears to be the best option. Money can be used to buy something expensive or for personal gain.
- Fixed interest rates offering predictable monthly repayments – This is probably the most important benefit of an installment loan. The interest rate at the start of the loan continues throughout the loan repayment period. If there are fluctuations in the interest rate, the borrower might have to pay more monthly repayments. With fixed interest rates, the borrower knows exactly what to pay off each month.
- Repayment terms are generally longer – When the repayment term of a loan is longer, it means that you have enough time to repay the loan. As the loan spans an extended period, the monthly repayment amounts tend to be low and manageable. Keep in mind that the longer the term can also mean more interest, so try to pay it back quickly.
- Credit scores matter less – Installment loans are popular with people who do not have a very good credit rating and history. Despite a low credit score, you may still be able to get an installment loan without too much difficulty.
Disadvantages of installment loans
- The borrower may have to pay a higher rate of interest for the fixed interest loans. In a mortgage, this can be disadvantageous.
- This type of loan locks the borrower into a long-term monetary commitment. For long term loans, this can be tedious. If the borrower experiences a drop in income or experiences financial difficulties, paying off on time can be difficult for them. It can also lead to the forfeiture of the collateral.
- If the lender is skeptical about the borrower’s repayment capacity, a high interest rate is offered. The borrower has no choice but to accept it.
Duration of an installment loan
The length of an installment loan can vary widely. It depends on the type of loan you are applying for. Personal loans are generally offered on a short term basis. It can last from 1 to 5 years. Auto loans generally have a longer repayment term. Mortgages can have an extended repayment term, which can be up to 30 years in some cases.
Installment loans can be convenient in many cases. These loans facilitate the repayment of the borrowed amount. You know exactly how much you have to pay per month, so you can plan your finances accordingly. However, factors such as the interest rate, prepayment charges, and down payment should be carefully analyzed. The prime lenders clarify these aspects when applying for such loans.