About 21.1 million people in the U.S. have taken out personal loans totaling an astonishing $143 billion. This is only one type of installment loan that people can take out. There are many types and each has its own purpose.
Most people are very familiar with credit cards and how this type of revolving credit works. But what are installment loans and how do installment loans work? Let’s find out.
Simply put, an installment loan is one that you take out as a lump sum. Then you are required to make regular monthly payments, “installments”, that include both interest and principal until the loan is paid in full.
In some cases, such as with student loans, you may not have to begin paying the loan back immediately. However, most of the time you will have to start making payments within one or two months of taking out the loan.
Longer loan terms mean your monthly payments are smaller, but you’ll pay more interest over the life of the loan. Shorter loan terms can be more challenging to pay each month, but make your loan cheaper in the long run.
There are many types of installment loans, you may even already have one or two without realizing it. These include:
Installment loans are taken out as a lump sum and often used to pay for something specific like a house or a car. People often take out personal loans to pay emergency expenses such as medical bills or car repairs or to consolidate debt and pay off higher-interest balances, such as credit cards.
Installment loans like auto loans and home mortgages have built-in collateral. This means that there is a hard asset that the lender can seize if the borrower defaults on the loan. In general, these types of loans are easier to qualify for because of this.
However, lending standards will vary. The more money you are asking for, the harder it can be to qualify. You may be asked to provide proof of income, your credit history, and offer personal assets as collateral for loans that are not being used to buy an asset.
To check into your options for taking out an installment loan trying browsing online sites such as Moneytrumpet.co.uk. It’s generally pretty easy to qualify for an online loan in smaller amounts (under $2000) even if you have poor credit history.
We hope this quick overview has helped you understand what are installment loans and how you can use them. From personal loans to mortgages, this type of loan is very common and very helpful for making large purchases or covering emergency expenses.
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