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An installment loan is a form of credit that is paid back in installments (monthly payments), usually over a period of several years. Some definitions define an installment loan as a loan with 12 or more monthly payments. Still, that definition can include loans with fewer monthly payments and loans that the borrower can pay off in a lump sum or early without incurring a penalty.
Example: LoanAmount = Total [Monthly Payments]
Each installment payment consists of both Principal (loan balance) and Interest somewhere between 1% and 4% of the original borrowing amount for the length of the Whole term.
Installment Loans Process
Though every lender is slightly different, the general process of applying for an installment loan is as follows:
- You submit a ‘loan application’ form (typically online)
- You are either assigned an online Account Manager or, after your submission, you will receive a series of follow-up questions from a real, live person.
- You will be given instructions about how to submit supporting documents relevant to the loan request
- You receive the funds into your bank account 1 to 3 business days later.
Characteristics of Installment Loans
- Loan amount: The maximum loan amount for installment loans is usually around $1,500. However, lenders with less strict qualification standards often allow for much higher loan amounts.
- Term (amount of time to repay): Your loan term will be anywhere from 6 months to 5 years. Most lending companies will offer a minimum of 12-month and a maximum of five years—also, the longer your terms, the more money you can borrow.
- Monthly payments or repayments: You can pay off these loans in lots of different ways according to your requirements.
Some popular options include four-equal payments over the fixed repayment period. Monthly payments eked out over a long-term period, reduced monthly payments with the option to pay extra at any time, and the always alluring ‘balloon’ payment (think home equity line withdrawal). You can pay this money back quickly by paying off the entire loan in full before the end of your term.
However, this also means that you’ll be stuck with a higher interest rate than if you had taken smaller or more scheduled payments. In any case, you are likely to receive a grace period – usually just 30 days – after you retire from school, during which time any late payments will not be charged interest at all. Interest rate: This varies between as little as 11% and as much as 29%, meaning that ‘equity’ financing could turn out to be pretty pricy. Indeed, it’s not uncommon for an installment loan rate to fluctuate considerably around its base rate depending on how much of your monthly payment you pay down on a given month. For example, student installment loans can change the interest rate every month, depending on how much you repay each month on your loan balance.
Installment Loans Rates and Terms
While rates and terms are often similar among lenders, there can be a great deal of variation. For instance, one lender might offer the same rate to everyone while another offers loans at a higher rate to students with poor credit. Among the most important things to check in any loan are the following:
- What is the interest rate? Usually, this is as much as 2%-3% higher than a federal loan or low-interest private loan.
- Will you have to pay a service fee to borrow? Some have no fees, but others may charge a fixed upfront origination fee or a monthly ‘service’ (i.e., loan management) fee. At the same time, some companies also will punish late payments with additional penalty fees.
- How much can you expect to pay in interest over the life of the loan? The average term of installment loans is five years.
If you pay off your loan in its entirety during the first year, you will have paid the entire balance without accruing any extra interest. This means you can pay off your loan without being hit with any interest charges after 12 months if you have started paying down from day 1 (or 24 months for five-year term loans). Compared to federal student loans, which has 10 years of grace period interest-free amount, it’s downright close! In general, better terms mean more expensive loans. Lower interest rates often mean smaller monthly payments, but sometimes they also mean longer repayment periods and larger principal amounts.
Are Installment Loans Safe?
A lender can ask you to repay the loan according to different terms, like according to monthly installments (installment loans). These are also called ‘ amortized’ loans because they are repaid using the principal plus interest periodic payments. Installment loans are made for periods of 1 year to 10 years, generally. A new term begins each time the borrower makes a new payment. This type of loan is partly credited toward repayment by direct debit from the borrower’s checking account. A separate credit agreement is signed before the first installment is due. The credit limit s feature of installment loans allows certain money withdrawal facilities, as well. So, installment loans offer flexibility and more options than traditional cash-advance credit products.
How to Apply for an Installment Loans?
Ower a new application at your website so that he does not have to interview you. So, if you want to pay off the loan as quickly as possible, you can select a low-interest rate and shorter repayment term. But remember that with a shorter term, you’ll have more payment s, and therefore more interest charges. Are you getting regular refunds from work? If not, it might be time to consider other income strategies. That will help keep a little extra in your checking account each month to replenish your bank reserve plus reduce the amount of money you owe. Investing in stocks with high fixed dividends is another good approach
Documents to Apply for Installment Loans
Documents required to apply for installments are:
- Employment Certificate;
- Age Proof;
- Identity proof;
- Permanent address proof;
- Income proof;
- Bank statement and residential address.
Best Tips for Taking Out Installment Loans
If you have already taken out loans from a bank, you must be aware and avoid using the same bank for another loan. This is because most banks won’t grant any loan to you after they have already provided you with one. You need not go to the bank in person when applying online. Still, it would help if you did so once the lending institution accepts your application to pay off debt and interest rate to get the best deal available in installment. The best tip to consider is to pay off your credit card debts before you get another payday advance loan.