A loan refers to the act of lending property, other valuable goods to an individual, a bank, an organization in return for payment of the principal amount with the interest.
Installment loans are those loans which are to be paid in the installments. They can be availed either by providing something as collateral or without providing collateral. However, approval of loan without providing collateral is next to impossible.
Pros and Cons of Installment Loans
- An instant source of money: Installment loans are best for providing funds when someone needs it immediately.
- Greater the time period Lower the Monthly Payments: Let’s say, you take a loan of $1200 for 12 months then you have to pay approximately $100 with interest on it, but if you take the same loan for 24months then you have to pay $20 with interest every month.
- Easy approvals: It is very easy to get installment loan’s approval. Formalities for the installment loans are relatively less and very few documents are required to submit. As a result, you can get it approved fast.
- Scheduled Monthly Payments: Payments are scheduled and the borrower does not have to worry about the increase in debt.
- Interest Rates: Most of the banks use fixed interest loans for the installment loans. Fixed interest is that type of interest in which you have to pay according to the pre-decided interest rate whereas variable interest rate keeps on changing according to the economy.
- Irreversible Conditions: The terms and conditions of payments, interest rates, mode of payment, time duration, and collateral are decided in advance and there is no scope of changes in them.
Installment Loans vs. Payday loans
A loan which is paid as per the schedule and on a lower interest rate installment loan. There are various kinds of installment loans which include mortgage loans, car loans and more. Installment loans are legal and are widely accepted.
Opposite to installment loan, a payday is a loan availed for short-term to meet basic financial requirements. Interest rates on payday loans are very high as compared to installment loans and it is illegal in multiple states.
Duration of installment loans
Duration of loans is categorized into 2 types that are short term loans and long term loans.
Short term loans
That loan whose time period is between 1 month to 3 years is called short term loans. Most of the payday loans are short term loans.
A loan which is availed for more than 3 years is categorized into long-term loans. Long term loans come in both the forms, secured and an unsecured loan. For the lender to be on safer side, long term loans are generally approved in the presence of collateral.
Conclusion: An installment loan is simply a loan in which you have to pay on the monthly basis. Interest rates on these loans are less than payday loans which are availed for short period of time. Along with that, these loans are easy to approve and has reasonable interest rates.