There is a change that at some point in your life you will need to take out a loan of some type. Few of us make enough money to be able to afford everything we need in life without needing financial assistance. When in need of financial help, you can look at CreditNinjas loans in Columbia, you can shop around, and you will likely spend some time looking out for what loan is the best for you.
One loan you may hear a lot about is installment loans, but if you are not well acquainted with the concept, we may as well be talking French, so let’s explain what these are and how they work, so you can figure out more about loans that can help you.
What is an installment loan?
So, you have probably heard the term ‘installment loans’ at some point in your life, but chances are if you are a first time borrower, this is just gibberish to you.
An installment loan is actually a really common form of credit. You might already have one and just not be aware that is what it is. Installment loans, which are also known as installment credit, are closed-ended credit accounts which you pay back over any set period of time. They might, or might not, include interest. This is not one specific type of loan, it is instead more of a category that other loans might fall into.
What are installment loans used for?
Installment loans are used for multiple things, they can be used for mortgages, buying a car, taking out a large amount of money, unlike revolving credit (the opposite), they are closed, and you can often get a large lump sum using them.
What you can use them for depends on the individual loan itself, rather than being specified to installment loans.
Read further down to learn about the different types of installment loans.
How do these loans work?
So, how do these loans work? Well, when you take out an installment loan, you will immediately receive the money that you are borrowing, then you will pay it off, sometimes with interest, in a regularly scheduled payment scheme, which is known as installments (hence the name), think of mortgages- yes, these are installment loans.
You will typically owe the same amount upon each installment for a set number of weeks, months, or even years, depending on the loan. And then once the loan is paid back in full, the account is permanently closed.
There is an alternative to installment loans, which would be known as revolving credit accounts- these are things such as credit cards Unlike the installment loans that we are talking about, revolving credit or credit cards are open-ended credit. This means that they can be used and paid down repeatedly on end for as long as the account remains open and in good standing.
The best way to see the difference is to consider the difference between how your mortgage works and how your credit card works.
What are the types of installment loans?
Installment loans can be secured or unsecured, which refers to whether or not you need to put down collateral in order to secure the loan with the lender. Each loan will have a different interest rate, terms, fees, and penalties. It will also depend on your individual financial situation as well.
So, let’s look at some of the types of installment loans.
Auto Loans- Auto loans are a type of installment loan, they can help you to pay for a new or used car. They are secured by the car you are buying. They will typically have fixed interest rates and repayment periods that will range from two to even seven years,
Mortgages- Mortgages are a great example of how installment loans work. Mortgages are used to buy a house and these loans are secured by the house. There are lots of different mortgage types, but the most common are paid over a period of 15 to 30 years.
Student loans- Another type of installment loan that most of us probably do not realize are installment loans. They can be federal or private, and they are unsecured loans that help to pay for undergraduate, graduate or other forms of higher education. Unlike most other installment loans, you do not usually have to start repaying them straight away. Instead, you can wait until after you graduate and get a job of decent pay to start paying back this loan.
Personal Loans- These loans are also installment loans, and they are unlike the rest of these loans as they do not need to be used for any particular purchase. They can be used for anything from consolidating other debt, making home repairs, or even paying sudden and unexpected bills. A majority of these loans are unsecured, but their interest rates will vary.
How do you apply for an installment loan?
To apply for an installment loan, you must fill out an application with the lender, usually specifying the purpose of the loan, such as to buy a house, purchase a car and so on. Then you will discuss with the lender the varying options and issues in terms of down payments, the terms of the loan, the payment schedule, and the amount you will pay in each period.
So, if you wanted to borrow $10,000 to buy yourself a nice new car, then the lender will inform you that making a higher down payment will get you a lower interest rate, or you could get lower monthly payments by taking out a loan for a longer period of time.
Your credit score will also be reviewed, so they can decide on what terms they are willing to offer you based on your credit worthiness.