Installment loans are one of the most popular options for people to get fast cash for everything from daily expenses to emergencies, but many people still find themselves wondering “how do installment loans work?” We’re going to take a look at just what an installment loan is, as well as the details on how they work and how to get one.
An installment loan is an incredibly common type of loan. It is simply a loan that is given to an individual with payments that are required at pre-determined intervals. Many people have taken out an installment loan at one point or another, and may not even have realized it, because it may have been called something else.
Personal loans, auto loans, mortgages, and even student loans are all examples of installment loans. Secured installment loans have some form of collateral to secure them, such as a vehicle or a home, while unsecured installment loans do not. Secured installment loans will generally have far lower interest rates than unsecured loans and are also available in much larger amounts based on the value of the collateral.
Installment loans are relatively simple. The borrower is given a lump sum of money and is charged with repaying that sum over the term of the loan, with payments made at specified intervals. The most common are monthly payments, like you may have on an auto loan or a mortgage, but short-term loans may have more frequent payments such as bi-weekly.
Installment loans are notably different from a revolving line of credit such as a credit card because the funds are loaned in a lump sum and cannot be renewed without paying the loan off or renegotiating it. With options like payday loans, the loan must be fully paid off before another can be taken, and there is often a waiting period between the loan repayment and the new loan that must be observed.
The steps to get an installment loan will differ considerably depending on what type of installment loan you are seeking. In the case of larger loans, such as auto or home loans, there will be a lot of comparison and rate-shopping. The borrower will compare offers from several lenders, then decide on the best one and obtain a pre-qualification from them. Once a suitable purchase is found, the formal application will be completed, and the loan will be issued.
For smaller installment loans, like payday loans or personal loans, there may not be many options and there also may not be a pre-approval stage. In cases like these, the borrower simply applies online or in-store and is approved or denied within a few minutes. The terms of the loan are discussed, and the loan is issued.
Many people turn to short-term installment loans when they need fast cash but don’t have good credit. In many cases, these loans are one of the only options for people with bad credit or limited credit history. While the lender may check the credit history, it often won’t have as large of an impact on the decision as it would for much larger loans. The unsecured loans that are ideal for those with bad credit have lower lending limits, but higher interest rates, to help offset or mitigate the risk of default.
If you’re still wondering how do installment loans work, or if you feel that a short-term installment loan may be right for you, contact Lending Bear today to discuss your needs.