Installment loans can be a game changer when you require flexible repayments. Many prefer such loans because they can get a huge amount and repay it later in small installments. During these challenging economic times, you may require extra cash, so you must know about installment loans. If you require an emergency loan for an unexpected expense or wish to make a big purchase but prefer to pay it off in installments, an installment loan could be the ideal solution.
Installment loans and How It Works
An installment loan is a borrowed sum of money repaid in smaller portions over time. It is known as installment when given monthly or biweekly options to pay the loan. Making monthly or biweekly payments towards the loan will pay off both principal and interest with each installment.
Installment loans are of two types: secured loans and unsecured loans. In secured loans, you should provide an asset as security. But you must provide proof that the property is truly yours. You can do that through valid documents and records before getting approved.
Unsecured installments loans don’t need collateral. The lender will ask you to demonstrate your repayment ability; they just want assurance that you can repay them. You can show your monthly income and any other ways you use to get passive income.
Now let’s see how installment loans work:
Let’s say a shopper purchases an exercise bike at Rs. 2000 from the merchant, the bank will send Rs. 2000 to the platform to cover the cost. The shopper will then owe the loan platform Rs. 20000, which can be paid in smaller installments. For instance, the Rs. 20000 cost can be divided into four Rs. 5000 installments.
The platform may impose a 6% fee on the merchant, which amounts to Rs. 1200, to cover the interest paid to the bank. However, when the merchant offers 0% interest to customers through the platform, they pay the fee and do not charge the customer who purchased the exercise bike. As a result, the customer still only pays Rs. 5000 per installment payment, not Rs. 5300. Installment payments are usually made bi-weekly because employers typically pay their employees on that schedule.
Below are the benefits of installment loans:
1. You will be able to make major purchases
With the help of an installment loan, making big purchases is a breeze. You can easily get behind the wheels of your dream car by taking out an auto loan or buying that house you’ve had your heart set on with a mortgage loan. After applying for the loan, the asset you bought will become the collateral. You can later pay the loan in small amounts for 10 to 15 years.
Instead of taking out a quick short-term loan, take out a personal loan if you plan on making any major purchases. It is your ticket to buying that car or other big-ticket item without worrying about too much upfront cost.
2. No pressure to repay the loan
With installment loans, you can take the pressure off loan repayments and spread them out over time, if it is six or ten years. You won’t strain much when repaying the loan. You only have to make small amounts in each installment.
Compared to payday loans, it can be devastatingly expensive because you have to pay back both principal and interest within one month. Many borrowers find themselves unable to meet this requirement which leads to defaulting on payments.
3. You are sure to make monthly payments
Taking out an installment loan gives you the security of knowing exactly what amount will be due each month. This stability makes it easier to plan your finances and budget accordingly without worrying that payment amounts might unexpectedly change in the middle of a loan term. The catch is that this predictability facilitates better planning with each paycheck and budgeting for other future needs.
4. You can repay the loan amount earlier
They say the early bird catches the worm. Ever heard of it? Well, it applies to loans. You can save a good sum of money and avoid extra fees when you repay the loan quickly. Besides, it helps to keep costs down. But check with your lender first for any early repayment fees. Some may charge you for earlier repayment, so doing due diligence can save you in the long run.
5. Better rates on a good score
With a good credit score, you can get substantially lower rates for installment loans. For example, some lenders like lendingplate offers an incredibly low rate of 3% – 5% PM. But if your credit score isn’t so great, expect higher interest rates, which is still way below what most lenders offer. That’s better. You will repay the loan quickly without straining your budget.
6. You can build credit
Struggling with a low credit score? Why not use an installment loan to raise it? By providing timely payments, people can steadily increase their rating and achieve a better financial future.
Installment loan lenders are a better choice than payday lenders. These loans provide an opportunity to make fixed payments that can help reestablish financial stability and bring that positive rating on one’s credit report.
7. Quick loan approval
Looking for a fast and easy way to access cash? Want an urgent loan? An installment loan could be the answer. With no drawn-out application and approval process, you can get your money quickly.
You just have to provide your information on time and expect quick approval and payout afterward. In many cases, you can have money deposited into your account the next business day.
So if speed is key, look no further than an installment loan.