Grasping the Concept of Installment Loans
Finance plays a big role in our daily lives and it is necessary for each one to understand its different terms and their conditions. Installment loans is one such word that can give you relief in times of emergency or need, if you understand the way it works and how you can reap its benefits. You can use an installments loan for a big expense like a house, a car, a student loan, etc and slowly pay back the amount that is due at fixed schedules.
When a person has to spend a big amount of money that is not available to him, he borrows the amount required from a lender. This lender will lend him the money only if his past borrowings and transactions are trustworthy. After borrowing the amount, the borrower has to pay back certain amounts at fixed schedules, mostly monthly, in order to return the money back to the lender. Since the loan is a significant lump sum given at one shot, the borrower now has to pay back money which includes the loan amount, i.e. the principal amount as well as some interest and is according to the time needed to repay.
Installment loans are commonly known as mortgages as well as Installment Debts or credit. It is the money that a person owes the lender. It is usually done monthly and can extend from a period of few months to many years depending on the loan. If it is a small amount, it can be paid back sooner, e.g. a student loan. But larger loans like a house loan or a car loan, may take years to pay off the installments.
Installment loans may sometimes be confused with credit cards. To clear the confusion, we have to pay credit only when we use our card for expenses. It doesn’t have a fixed schedule or amount, whereas, installment loans have to be paid regularly. The amount and the time period is always the same and don’t change unless the borrower is unable to pay his amount on time. In the case of a default, the borrower might have to pay back a significantly bigger amount and for an extended period and might also lose some valuable assets.
These loans are generally used by people from the middle or low income groups who find it difficult to pay large amounts for their expenditures. It is useful and efficient since they can fix their monthly expenditure and keep an amount aside every month to pay the loan. But sometimes, due to emergencies or a big expense, they mightn’t have enough money to pay the loan. In such cases, the time period is extended and the loan amount is also increased along with the rate of interest.
Installment loans are beneficial to many groups of people. Firstly, it includes the common man who has to pay lesser amounts in multiple loans instead of a huge amount being credited at a single instance. It is also advantageous to the sellers who encourage these consumers to take loans on a product. It increases their sales records and profits. The group which gains the most from installment loans is the money lenders themselves since they are sure to make a profit on the amount that they loaned. There is always a guarantee that the amount will be repaid and if not in time, they can increase the loan amount.
As these loans are paid regularly, the amount of the loans usually decreases to a minimal amount towards the end of the time span. If the borrower is capable of repaying bigger amounts of the loan, the time span is reduced. This makes their burden much lighter. The concept of installment loans is extremely useful and vital to the common man’s financial life.
Installment loans are easy to apply for and some of its advantages are that your application will be secure and it doesn’t require faxing. You can avail of instant loans ranging from a small amount like $150 to much larger amounts. This loan can even be deposited into your account overnight, saving time and effort especially in times of urgency. You can apply for installment loans even if you are neck-deep with bad credit. One important point to keep in mind is that installment loans are not meant for long-term usage or to plan and manage your money and expenses. Its focal concept is that is useful in the short-term to help with large expenditures.
Knowing How to Use Installment loans
Installment loans are generally a comforting help to a common man’s financial dilemma. A person who cannot afford things like a house or a car can apply for installment loans. This means that the lender lends him the entire down payment in one go. The borrower then has to pay the loaner his money in fixed installments. This money includes the principal amount as well as interest and has a specific time period. Installment loans can be paid in either monthly or yearly installments. Monthly installments are more common and viable for the borrower.
The money that is loaned has to be paid by the end of the repayment term. An equal sum of money is paid regularly. This can help the person to plan out his monthly budget and keep the necessary amount apart from his usual expenditure. If the person isn’t able to do so, he might end up paying more or losing a few valuable assets due to his inability to pay back his loan on time. The balance amount becomes less with each payment.
Installment loans are now easily available to be people. But the lender first has to ascertain that the person will be able to repay the money. For this the lender may ask for the borrower’s previous financial transactions or banking details. The guidelines for the deal are set out right at the very beginning when the loan is taken and the borrower must adhere to these guidelines throughout his term of repayment. If he doesn’t, he could be at the losing end, having to pay twice the principal amount. Once the deal is finalized, the cash is deposited into the borrower’s account within a few hours. This amount has a wide range. It could be anything from a small amount like $150 to thousands of dollars. Faxing is not required. These loans are live savers in urgent situations.
The term of the loan can range from just a few months to more than a decade. If it is a small amount and is paid off within a few months, it is more economical. Otherwise he would have to pay larger sums for a longer period at a higher interest. Usually the rate of interest is always high which makes it worrisome about taking a loan when a borrower is already struggling with his finances. There are also a few rare cases in which the borrower may have the entire amount to pay at once, but they are not allowed to because of the terms and conditions. So they have to pay the lender a larger sum for a longer time.
Some of the disadvantages of Installment loans are that it has a fixed rate of interest. It does not vary according to the market conditions. It is finalized at the beginning of the negotiation. When the borrower cannot repay his loan within the given amount of time it is known as a default. So, even if the borrower may be going through hard times and is unable to pay, he has to find ways and means of doing so which may mean that he loses a few valuable assets. The rate of interest remains the same irrespective of market conditions. In such a situation, the borrower would have to pay high amount even if the rate of interest was lower.
Some say it is better to borrow from friends and family where you can repay them whenever you want without interest. But installment loan is a way of learning to manage your own budget and being responsible, where you have to bear the consequences yourself if the payment is not done on time. These installment loans can be taken from banks and corporate societies and other financial institutions. The loans that people usually need are house loans, student loan, syndicated loan, payday loan, title loan etc. It is important to remember that installment loans are meant as a way out only for short-term financial problems and not as financial plan for a long period of time. Installment loans can be renewed from time to time for different payments. In such an instance, the borrower may have to pay a small amount as fees. This could be considered as part of the principal amount being paid for a previous installment. There will also be a change in the rate of interest.