Installment loans are fixed amounts of money that should be repaid with regular installments. For each repayment, the borrower pays a portion of the principal amount plus interest rates. Standard types of installment loans are car loans, personal loans, and home loans. Installment loans are fixed-rate loans; the interest rate remains fixed during the repayment period.
Installment loans can either be secured and collateralized, meaning that the borrower should bring a pledge for it, or unsecured and non-collateralized, when the borrower is not required to bring anything as a pledge. In the case of secured installment loans, defaulting on repayment can bring a loss of collateral. This means that the lender can repossess the pledge against the unpaid debt.
The Process of Applying for an Installment Loan from Direct Lenders
Compared with bank or credit union installment loans, the procedure of applying for loans taken from direct lenders is much more comfortable. The borrowers apply for an installment loan by filling out an online application form, which specifies the purpose of the loan. The lender reviews the completed form and discusses the loan terms, such as duration, payment schedule, and payment amounts, with the borrower. The lender can ask for the borrower’s credit report to review his credit history for the past years. If the lender is confident with the borrower’s creditworthiness, the claim is approved, and the direct lender sends money to the bank account suggested by the borrower.
The Amount and the Duration of Installment Loans
The amount for installment loans depends on the creditworthiness of the borrower. Generally, an installment loan enables people to borrow between $5000 and $50,000. The higher the credit scores are, the bigger the amount for a loan can be.
The terms for installment loans depend on the type of loan. Car loans and personal loans can be repaid in monthly installments over a range of 12 to 96 months. Loans with a longer duration cost less as a monthly payment but have higher interest rates and can end up with more overall amount than short-term loans.
Home installment loans are to be repaid within a 15-to-30-year term with monthly installments.
Credit Scores with Installment Loans
Interest rates for installment loans are based on the borrower’s credit. If the borrower had problems with his credit in the past and has lower credit scores, he will have to pay a higher interest rate than borrowers with good credit. Thus it is highly recommended to try to improve credit history before applying for an installment loan.
Payment history is an essential part of building credit. Paying off an installment loan on time as agreed is an excellent way to make a good credit history. The credit score can be hit in case of missed or late payments.
Extra Fees and Penalties
Sometimes direct lenders can require application fees called “origination fees” and credit check fees, which will increase the total amount of the installment loan. They can even charge prepayment penalties-fees for paying off all or some of the loan early. Remember, prepayment penalties only impact you if you pay off your loan early- they won’t affect you if you pay off the loan as scheduled in your contract.