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How Do Installment Loans Work?

There are so many different sorts of loans available nowadays, that it can be difficult to keep track of what each one actually does. To make things that little bit more complex, the term “installment loan” can actually be used for a wide range of different loans, rather than just the one sort. They can range from personal to professional loans, and can be paid back at different rates. However one thing they all have in common, is that they’re to be repaid using installments. A lot of the small print is variable from lender to lender, but they’re all paid back on a regular schedule decided by the lender and borrower. Today, we’re going to take a little look into how installment loans actually work.

The Basics
If you’re looking into installment loans with Personal Money Network, then it’s a good idea to have a grasp of the basics before jumping in at the deep end. All loans differ, from student loans to payday loans, so before taking one out you need to have a grasp of what they do, what they involve, and what their requirements are.
Some of the most common types of installment loans are mortgage loans and personal loans. The thing about installment loans, is that the vast majority of them are fixed-rate loans, which simply means that the interest rate at the time the loan was taken out will remain the same throughout the time the money is borrowed. This means that the payment amount you’re charged monthly is likely to stay the same, so you know what you’re expected to pay – in short, it doesn’t fluctuate. This makes it a LOT easier for the person who borrowed the money to budget their repayments into their monthly outgoings.
Furthermore, installment loans can either be collateralised, or non-collateralised. The perfect example of a collateralised installment loan would be a mortgage, because the collateral is the property itself. However, some installment loans are actually referred to as personal loans instead, and can be extended without requiring collaterals such as property and vehicles. These particular loans are based on how good the credit of the borrower is, and how reliable too (as in the credit score of the borrower, and sometimes their assets too). Usually, a non-collateralised loan would have a higher interest rate than collateralised loan. This is because of the risk of non-repayment.

What’s the Process?
So now we know exactly what installment loans are (however broad), it’s time to take a look at the process of them.
Usually in the beginning, the person wanting to borrow the money will go through an application process with a lender. It’s normal for you to have to state why you’re actually wanting to take the loan out, for example whether it’s for a car, a house, or a business start-up. The good thing about this part of the process, is you can sit down with your lender and figure out what the best plan of action would be for you, in regards to how much your loan is and what it’s for. This discussion is likely to include things like payment amounts, the payment schedule, and how much of a down payment you’ll have to put down. A lot of the time, the lender is likely to review your credit score, and look at how reliable your records are. This can affect the amount they’re willing to loan you, as well as whether they’d be willing to extend the credit at all.
There does tend to be other fees to pay the lender, on top of what you owe. Of course, you’re paying for a service, so this is to be expected.
The loan is then eventually paid off with the agreed monthly amounts.

What Are the Advantages of an Installment Loan?
Finally, let’s take a look at a few of the advantages of taking out an installment loan.
Of course, the biggest one is its flexibility. It’s one of the loans where it’s the easiest to tailor to your own specific needs in terms of timing and finance. It’s also a good way of knowing exactly where you are when it comes to your finances too, as you’re paying a fixed-rate each month.
These loans have a considerably lower interest rate than others, and it’s much lower than getting a credit card for example, which means the person borrowing the money gets to pay less, and keep more.