Installment loans are disbursed upfront only once. However, the repayment has to be done
in installments. So, that’s how it gets its name. The amount you are required to shell out
every month is usually fixed. However, if you have opted for loan with variable rate of
interest, the amount you have to pay every month will also vary. A loan calculator can help
you to assess the repayment amount in this regard.
Aside from the rate of interest, other factors that will decide the monthly payment of the
loan depends on the time period that you have been allotted to return the loan and also the
outstanding balance of the loan that you have availed. As such, installment that you pay
every month deducts not just amount based on the rate of interest but the principal
amount of the loan gets reduced too.
Classical examples of these types of loans include mortgages as well as auto loans. Majority
of the borrowers opt for installment loans online. This is because they do not require
extensive paperwork and the process of loan approval and disbursement is faster too.
Benefits of installment loans
There are several benefits of using installment loans online as well as from storefront.
Some of these are mentioned below:
- 1. Planning your finances – The most important benefit of a fixed rate of interest
installment loan is that you are able to assess the amount you have to pay every
month. As such, you can plan your financial commitments well in advance. In order
to meet this financial obligation, you can keep aside this amount beforehand so that
you do not fall behind on payment.
- 2. Build credit – Another very important benefit of availing these loans is that it helps
to repair your credit. Experts are of the opinion that for any borrower, a mixed bag
of different types of debts is important. As such, if you opt for these onetime-
payment loans and are able to repay the same within the stipulated period of time, it
is bound to get reflected in your credit report.
- 3. Helps during unexpected financial crunch – Regardless of whether you are opting
for installment loans online or from brick and mortar stores, these loans have been
found to be very useful especially if you are facing an unexpected financial crunch
and you have not saved for the rainy day. As such, these loans can be compared to
payday loans. However, just as these loans help you in overcoming the financial
crunch, they are expensive too. But it will be wrong to draw an absolute comparison
with the payday loans as these installment loans are debtor friendly most of the
- 4. Avoid balloon payment – Unlike payday loans that can cause your debts to spiral
out of hand, installment loans will not cause the same. However, this holds true
provided you make regular monthly payments. Also, the rate of interest is not high
as in the case of payday loans.
Drawbacks of installment loans
Find out if the positive aspects outweigh the negative ones. In this way, it will be easier
for you to decide whether opting for these loans is actually a positive move or not.
- 1. Hidden expenses – Unless you are able to deal with an honest and reputed
lender, it will be hard to say whether or not you will get a fair deal. Many debtors
have complained that when they were first offered the loan, no one explained
that there were certain hidden charges. There were so called add-on fees,
flipping of loans, misleading tips and guidelines and fake claims about the
products. As such, it is of utmost importance that you get hold of these loans
from reputed lenders, even if that means spending a couple of days hunting for
the safest lending companies.
- 2. Rolling over like payday loans – Just like payday loans, these loans can be
renewed again. And if you rollover the loan once, you can expect the rate of
interest to be higher than the first time.
- 3. Getting into a vicious debt cycle – It has been observed that people that are
badly in need of cash renew the loan again and over the months or during the
tenure of their loan, are able to pay only the interest part and the principal
amount does not get reduced. This can be financially very much stressful for the
debtor over a period of time when he realizes that he has not been able to pay
back the original amount as yet.