If you’ve ever had a car loan, then you’ve had an installment loan. A mortgage loan is another type of installment loan that is quite common. These types of loans are repaid with a set number of scheduled payments. Typically, it includes more than two payments made toward the loan. An installment loan can be as short as a few months or as long as 30 years.
Generally, these types of loans can range from $150 to several hundred thousand dollars. Interest and other finance charges are applied to the loan and are also included in the fixed monthly installment payments. If an installment loan is an extremely high amount, it will typically be secured by personal property that can be taken if the loan is not paid back. Collateral damage may include vehicles, electronics, firearms, and jewelry. The collateral damage of personal property excludes real estate and wedding rings.
Nearly all installment loans have interest applied to them, which is often described as the APR, or annual percentage rate. A loan will naturally accrue interest periodically at a specified rate. If left unpaid, the interest will cause the borrower to pay a higher total amount.
Installment loans are often used to build the credit of those with bad, poor, or no credit. This is due to the fact that that this type of loan requires multiple payments over time, creating a good repayment history. This positive credit history can then be applied to other types of loans.
An installment loan differs from a payday loan, which has a shorter duration, and is paid back as a lump sum on the borrower’s next payday. Payday loans vary from $100 to $1,500 and are generally unsecured – meaning there is no collateral.
Featured Image: DepositPhotos/ RawpixelPosted on May 5, 2023