An installment loan is segregated into two categories that are; commercial and personal loans, which are extended to borrowers and require payments regularly. Each regular payment asks for a portion of the principal amount, also the portion of the interest in the debt. Many factors influence the number of scheduled payments like borrowed, interest on the loan, the terms of the loan, and more. Mostly, installment loans are fixed loans, they levy an interest rate that remains fixed from the time of borrowing. Fixed-rate loans ask borrowers to make the payment following the same schedule that gives them room to be prepared in advance so that they make the future payments towards the loan.
A Guide to Applying for an Installment Loan:
The borrower has to visit the credit department of a financial institution when he or she has to apply for the Installment Loan. The credit department has consecutive that discuss several factors like loan amount, down payments, loan duration, interest rates, the purpose of the loan, and many other factors. When the borrower gets convinced with the process of the loan, he/she has to fill a formal application for a loan. The borrower is asked to provide crucial information like the amount of loan requested, purpose of the loan, collateral provided, etc. When the loan application is deposited to the bank, the lender starts evaluating the loan process to see the capacity of the borrower to meet the protocols involved in the loan. The borrower also needs to submit additional information like recent financial statements, proof of ownership of the collateral, evidence of current cash flows, etc. There are chances that the lender might ask for the credit report from the borrowers to analyze his credit history over past years. If the lender gets convinced that the borrower can repay the loan with interest, the application would get approved, and funds will be disbursed. On the other hand, if the lender concludes that borrowers present high-risk, they may reject the application or extend credit but with a high interest rate to make up for the risk.
Types of Installment Loans:
Auto Loans: It is a loan that is borrowed to buy a motor vehicle. These loans come with a time duration of 12 months to 60 months or even more depending on the lender and the amount of the loan. The lender provides the borrower with the amount that is equal to the price of the vehicle and the borrowers agree to make the payment every month until the borrowed loan is completed. In auto loans, you can give your car collateral until the amount is repaid. In case the borrower defaults on the payments, the collateral would be reclaimed and sold to retrieve the amount of the loan.
Mortgage Loan: It is a loan that is borrowed to buy a house. It offers a maturity period of 15 years to 30 years when the borrower is expected to make monthly payments till the loan amount is paid. They come with a fixed rate of interest, monthly principal, and interest payments remain unchanged. The other alternative to a mortgage loan is the adjustable-rate mortgage, where the interest rate is fixed during the initial term of the loan. Further, the interest rates keep changing depending upon the market interest rates.
Personal Loans: It is a loan that grants borrowers to pay off the emergency expenditures such as college, tuition fees, wedding expenditure, or medical cost. The duration of the personal loan can be from 12 to 60 months. They are mostly charged with a fixed interest and they are asked to make monthly payments that are fixed for the loan’s duration.