What is an installment loan?
The term ‘installment loan’ refers to a loan that is paid back by way of a fixed payment plan, which covers how much each installment payment should be, how many installments there are and how long the period of the loan is.
Installment loans are fixed-rate loans, meaning that the interest charged over the entire period is fixed at the time that the loan is taken out. Installment loans are an increasingly popular form of credit at retailers, but also covers auto-loans and mortgages.
Key differences between an installment loan and a credit card:
- Loan amount and interest is fixed at the time of taking out the loan
- Monthly installment payments
- When the installment loan is paid back, the account closes. A credit card is a form of revolving credit that continues to be open for use even after the amount is paid back.
What do I need to get an installment loan?
Installment loans are available at the point of sale of an individual retailer, accessible in-store, online or most recently, through your mobile phone. Depending on the amount and the type of retailer, you will need to provide some personal details, possibly including your ID or proof of salary.
To be approved for an installment loan, it is most likely that a credit check will be carried out on you. Depending on the lending institution, a prime borrower is most likely to be approved but lower tiers of a borrower will still be considered, although it will most likely be at a higher APR. Certain installment loans, usually available through retailers for more affordable items, will charge a one-off fee instead of interest. Ensure that you have sufficient funds to meet the installment payments required on the payment plan.
What are the benefits of an installment loan?
Installment loans have increased in demand in recent times, partly due to their popularity with millennials who try to avoid the type of debt they saw their parents in. Installment loans are preferable to other kinds of point of sale finance, as you know in advance exactly how much money you will be paying back and when the debt will be paid off. Due to the fixed interest rates, borrowers can save themselves a lot of money, especially those with a high credit rating.
Installment loans are easy to apply for, often using a mobile device, and approval is almost immediate.
- Knowing how much your monthly installment payments are
- Knowing when the debt will be paid off
- Fixed interest rates in advance if a payment plan is followed
- Easy and quick to apply for, immediate approval
- A great option for unexpected purchases