Installment loans are the kind of investments you borrow a wholesome amount that you get in full. The repayment plans set demands that you make partial fixed payments over a period in time in what is known as installments.
In some loan agreements, you sign to pay off the loan in fixed payments plans that don't change over the loan's life. Other installment loans are issued with variable interest rates which varies the payment amounts from time to time.
A lot of the loans granted daily are installment loans. Some of the most common installment loans types include:
Mortgage Loans
Under this type of loan, you borrow money to purchase a house. The repayment plans are stretched between 15 and 30 years where you continue depositing monthly payments.
Most mortgage loans are issued with fixed interest rates that don't change until the end of the payment plan. The interest payments and monthly principal payments remain the same.
Auto Loans
These are loans that are paid in monthly installments ranging from 12-96 months. Credits stretching longer are charged lower principal monthly payments but attract high-interest rates.
Personal Loans
For this type of loan, once granted, you can use it to pay a variety of things such as student loans, medical bills, and other emergencies. The installment payments are made from 12-96 months.
Unfortunately, personal loans are issued together with high-interest rates because most are unsecured.
Installment Loans Pros
For most kinds of loans, you will end up making predictable payments. Such loan terms make it easier to budget for the repayment amounts and help you avoid missing payments as the interest, and principal amounts remain the same. Before committing yourself to an installment loan, see to it that the monthly payments you make will not frustrate you. After you pay off all the installment amounts, your debt is paid in full.
Installment Loans Cons
One of the biggest con against taking out this kind of loan is not having the ability to top up any amount on what you are borrowing. To get more money, you will have to take out a new loan.
The interest rates and the loan terms attached to the repayment plan is calculated based on your credit. If your credit history is checkered, you are given higher interest rates unlike if your credit score is strong.
The higher the interest rate, the more money you pay every installment.
Moreover, these loans attract additional fees and penalties; some financiers will demand that you pay application fees alongside check fees which add up to the total amount you pay before being granted the loan.
Some institutions charge prepayment penalties when you finish paying the loan early than the time set.
Conclusion
Before you commit yourself to take an installment loan, visit with a banking/legal officer to help you make headway of the terms and conditions attached to the credit.
With a clear understanding, you will be able to look around different financial institutions to get the best-placed installment loan that comes with favorable terms.