Instalment loans are a type of loans you pay down over an extended period. In other words, you can say them term loans. There are generally two types of loans: single repayment loans and instalment loans. The former requires you to pay off the whole debt as you receive your payday cheque. It means these loans last for a period until your next payday. However, instalment loans are paid down over a fixed period that may last up to 5 years and more in case of long-term loans.
Now you have got to know all loans that are paid in instalments are known as instalment loans.
This blog discusses the type of instalment loans.
Short-term instalment loans are those loans that last up to five years. If you need a small amount of money, you can take out short-term instalment loans with no guarantor. The term of the loan will depend upon the amount you borrow. The higher the amount, the longer the term will be.
It is generally considered better to have a longer-term because it eases the burden of monthly instalment. The longer the repayment term, the smaller the instalment will be. It becomes easy to make a budget for monthly repayments. Most of the instalment loans require you to have a good credit rating, but some direct lenders can allow you to take out instalment loans for bad credit.
Personal loans are unsecured loans. It means you do not have to put collateral to borrow money. You can take out personal loans to fund any of your expenses, including planned expenditure. The term of these loans lasts up to 5 years, depending on the amount you borrow.
A lender will sign off on the application for personal loans if you have a good credit rating. Personal loans can be expensive because they carry high-interest rates. A lender will look over your financial circumstances and credit history to determine your affordability.
In case of bad credit rating, your application will likely be turned down, or if any lenders approved the application despite a bad credit rating, the interest rate would be higher. Financial experts warn against taking out personal loans with bad credit rating.
Auto loans are a type of secured loans because the money your borrow is secured against the title of the car. Auto loans are generally taken out when you have to buy a motor vehicle. It means you can use your car, but the title will remain with the lender. You cannot get back it unless you pay off the whole amount of money.
Since the loan is secured against the car, your lender reserves the right to liquidate it to get full money when default. Secured loans are not just auto loans. Any loan that you secure against a valuable object is called a secured loan. A mortgage is also a secured loan.
If you need a small amount of money, but your credit rating is not up to the mark, you can take out a secured loan. Putting collateral against the loan will help you borrow money at a lower interest rate.
Student loans are also instalment loans. You do not need to pay off the loan outright as you do in payday loans. The repayment schedules for student loans work differently from other instalment loans.
You must be earning threshold income to start paying instalments of student loans. If you are earning over a threshold income, you will be paying 9% of the amount you receive for both plans. All repayments will be made through the tax system that immediately stops if you are earning under threshold income.
An instalment loan is not a single loan product. Mortgages, auto loans, secured loans, student loans, personal loans and other types of loans that require monthly payments come under the category of instalment loans. These loans can be both short term and long term. For instance, a mortgage is a long-term instalment loan, while a personal loan is a short-term instalment loan.