Getting the basics clear
Before you learn how to get approved for an installment loan, you must get your facts clear on this type of loan. Both commercial and personal loans can fall under this category. Mortgage loans and car loans are also offered in the form of installment loans. The majority of installment loans have a fixed rate of interest. The mortgage loans, however, can have varying interest rates. As the regular payment amount collected every month stays the same, the borrower finds it convenient. A payday loan is a different story since this type of koan has one payment rather than multiple ‘installments’.
Some installment loans require collateral, while others do not need it. Mortgage and car loans are collateralized, or secured loans. The property and the car are kept as collateral in these cases. The personal loans do not require any collateral mostly. However, in these cases, the credit history of the borrower is assessed thoroughly. His/ her income status is also considered. Generally, non-collateralized loans have a steeper rate of interest compared to collateralized loans since there is nothing of value available to the lender should the borrower default on the loan.
The procedure of installment loan application and processing
The application and processing of installment loans are not very different from the other type of loans. The borrower may apply for loans online or at the lending company's branch. The form fills up part with vital details of the borrower is essential. The lender discusses topics like down payment, terms, extra charges, fees and a payment schedule, etc. The borrower has to make a down payment at times as well. The lender will also assess the creditworthiness of the borrower before loan sanctioning. Employment details of the applicant and his/her sources of income are also carefully evaluated. Usually, the entity offering the loan imposes a processing fee.
Once the loan is sanctioned, the borrower is required to repay the amount in fixed monthly amounts. However, they may also choose to prepay the loan in some cases. Every entity offering an installment loan does not keep penalty-free prepayment options, though. This is an issue you have to check with the lender at the time of applying for the loan.
Advantages of installment loans
Mentioned below are the benefits of taking installment loans over other kinds of loans:
- Easy process of application – For customers' convenience, installment loans can be applied online and in person. Whatever be the mode of application, the process is smooth and straightforward. Along with filling up the application form, the customer will need to furnish proper loan processing documentation. Generally, loan processing and sanctioning take place instantly until and unless there are some significant issues.
- Borrowing a large amount – If you are making plans for borrowing a heavy sum as a loan, installment loans come across as the best option. The money can be used for purchasing something expensive or for any personal purpose.
- Fixed interest rates providing predictable monthly repayments – This is probably the most significant advantage of an installment loan. The interest rate at the beginning 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 rates of interest, the borrower knows exactly what needs to be repaid every month.
- Repayment terms are generally longer – When there is a longer repayment term for any loan, it means that you have ample time in hand for making the loan repayment. As the loan runs for an extended period, the monthly repayment installment amounts tend to be low and manageable. Keep in mind the longer the term can also mean more interest, so try to pay down quickly.
- Credit ratings matter less – Installment loans are a favorite with people who don't have a very healthy credit score and history. Despite a low credit score, you may still be able to get an installment loan without too many difficulties.
When you need money in a hurry, there is no better alternative than applying for installment loans. Even with bad credit they can be an option for many.
Disadvantages of installment loans
No loan is perfect, and installment loans also come with their share of drawbacks. These are:
- The borrower may have to pay a higher rate of interest for the fixed interest loans. In a mortgage loan, 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 suffers a dip in income or runs into financial hardship, repaying in time can prove to be challenging for him/her. This can lead to forfeiture of the collateral as well.
- If the lender is skeptical about the borrower's repayment capability, a steep rate of interest is offered. The borrower has no option than to accept it.
Duration of an installment loan
The duration of an installment loan can vary widely. It depends on what type of loan you are applying for. Personal loans are usually offered for short terms. It can be for 1-5 years. Car loans generally have longer repayment tenure. Mortgage loans can have extended repayment tenure, which can be up to 30 years in some instances.
Summing it up
Installment loans can be convenient in many instances. These loans make repaying the borrowed amount easier. You know exactly how much you have to pay per month and so you can plan finances accordingly. However, factors like rate of interest, prepayment charges, and down payment must be analyzed carefully. Top-notch lenders clarify these aspects at the time of applying for such loans.