What is an Installment Loan?

By on May 16th, 2016

loan basics
Photo Credit: Pixabay.com

Decided to buy a car or arrange a mortgage? For this purpose, you should take an installment loan. In a couple of words, an installment loan is a type of borrowing that requires a fixed amount of payment each month. Nevertheless, a loan, which terms contain a minimum payment, doesn’t always refer to an installment loan.

An attitude to installment loans differs but the fact is that lots of people prefer them over other types of borrowing. And that’s a reasonable decision as they have some substantial advantages. By the way, it’s possible to take out online installment loans for bad credit. Therefore, it’s the best variant if you have a bad credit history.

Lots of questions arise when it comes to installment loans. In today’s article, we provide answers to the most common questions about installment loans.

Common Information about Installment Loans

The terms of an installment loan suppose borrowers to make small payments each month that gradually pay off a loan. Such kinds of payments are called installments. The important thing is that installment loans differ from payday loans and you must realize this difference to decide what kind of a loan is most profitable in a particular situation. A payday loan is a type of a small loan that is handy when you out of money. A term of a payday long is short (mostly, several weeks) and the amount of money, which is given, is small (less than $1000). While you agree to take a payday loan you are supposed to write a check for the amount of money you are borrowing and get the funds back when you pay off a loan. If you don’t manage to pay it off on time, you just accumulate fees that you have already paid.

If you don’t want to write a check for the particular amount of money, choose installment loans as there is no credit check installment loans require. This kind of borrowing is withdrawn directly. Of course, if you need, you can use a check each month.

Tricky Peculiarities

Even though some people consider installment loans to be new payday loans, there isn’t always true. Why? Here is the answer.

While you are attracted by the tempting reasonable interest rate, you don’t realize the amount of money you will pay for fees and different forms of credit insurance. Most of the people consider the credit life insurance and the credit disability insurance to be not obligatory. This fact makes an interest rate higher and “higher” amounts several hundred dollars.

If you don’t manage to pay off your installment loan, you have a chance to renew it. Nevertheless, it may seem as a lifebuoy but, in fact, it can lead to the debt circle. You come to your lender, who pays you back a small amount of money you have already paid including insurance payments and fees. You are happy but you don’t realize that by renewing your loan you make it start over again with new fees. That’s how lenders usually make money from people, who urgently need short-term loans.

While installment loans can be now more popular than payday loans, they still have tricky pitfalls that can bring you troubles. It refers, especially, to online installment loans, when you can’t contact a lender personally. Installment loans are a new era of borrowing that is really profitable, on the surface. Nevertheless, you must always be on the alert and familiarize with all terms of the agreement. All financial transactions require attention and a cool head. If you aren’t good at it, apply to real professionals, who won’t cheat on you!