Whenever you’re considering of applying for an installment loan – or any type of loan for that matter – it’s important to understand the different options that are offered out there. There are a number of examples of installment loans, and many of them have their own unique purpose.
What is an installment loan? If you’ve ever financed a car or a house in the past, you may have used an installment loan. But if you haven’t, you should be aware of the different options that may be available to you and suit your financial needs the best. We’re going to go over what an installment loan is and take a look at four different installment loan examples.
What is an Installment Loan?
An installment loan is a type of loan in which you borrow a set amount of money, and you repay that money over a pre-determined time period (some lenders may have prepayment penalties) with interest and/or fees. People may opt for this type of loan because it permits a longer period to repay your loan in comparison to a payday loan.
The payments for these installment loans may sometimes be substantially equal, meaning that you will know exactly how much you have to repay in each installment. This may make it easier to manage your finances as your payments will be more predictable. Given all these choices, you need to find the best type of loan for you. Maybe you’re looking to purchase a home and need to take out a mortgage, or maybe you have poor credit and would be better off looking into bad credit loans online. Each type of loan may have some features that might be beneficial to you, as such, it is important to learn about the differences between the multiple loan options to determine which one suits your financial needs.
Common Installment Loan Examples
As we’ve mentioned, there are several different types of installment loans, so we’re going to dive into a few of the most common installment loan examples.
1. Mortgages
A mortgage is designed for people looking to purchase a home. Usually, the homeowner will pay monthly installments until the loan is paid off in full. These payments are comprised of your principal payment, interest, and may also consist of certain taxes and insurance.
Since a mortgage loan amount is typically quite high, the term of your loan is relatively long. For a fixed-rate mortgage, terms can range up to 30 years. The process of applying for a mortgage requires you to assess your financial health. You’ll need to consider things like your credit history, your income, your financial goals, and your state of employment.
2. Student Loans
Student Loans are a form of financial aid available to students and are typically used by students to pay for university or college tuition and other education-related expenses. They are often subsidized by the government and therefore the interest on these loans is typically lower and the repayment terms can generally be more favorable. Most lenders only require student loans to be paid back after graduation and some student loans can even be deferred until the student has secured a job.
Many universities and colleges may have financial aid offices that can assist you with finding the best option for you. However, you should be mindful of only borrowing what you need. The more you borrow, the more you’ll need to pay back. You may want to first focus on finding possible grants and scholarships. Additionally, you may want to consider working and saving money during summer vacations or during the school term, if you can manage.
3. Personal Loans
A personal loan can be an option for those who need quick money in the short term to help with an unexpected emergency expense. In some cases, you will repay the loan in fixed installments. This way, you’ll know how much you’re going to pay by the end of the loan, and can work these payments into your budget ahead of time. Online personal loans can also be convenient to apply to because of the simple and fast application process.
4. Auto Loans
When you take out a loan to purchase a vehicle and use the very car you’ve bought as collateral, you’ve likely taken an auto loan. Auto loans can be used for motorcycles, trucks, cars or even boats in certain circumstances. The repayment is usually based on fixed installments during a specific term, with the most common term being 72 months. The shorter your term is, the more you’ll pay in each installment.
Learn More About Installment Loans
We know that it may get confusing to find the right kind of installment loan that works for your particular situation. But with enough research, you may be able to get a better understanding of your potential options. We hope we’ve been able to help in this process, and we encourage you to look through our Financial Articles page to get more information about installment loans and other types of personal loans!
