People often get stumped by all the different types of loans available when they need to apply for a loan. Before you apply for any loan you see, you should learn how they work and how they can benefit you. A term you might come across is the monthly installment loan.
What is Monthly Installment Loan?
‘Monthly installment loan’ is a catchall term for various types of loans that are paid back in smaller amounts, or installments, every month. This is in contrast to loans that are repaid in full in a lump sum. Installment loans make repaying a loan debt more manageable.
Some of the most common types of installment loans are:
- Student loans
- Personal loans
- Auto loans
How do installment loans work?
Installment loans in the form of personal loans can be obtained by personally visiting a licensed moneylender and making an application. You will need to check your eligibility and the required documentation that the moneylender requires before heading down. At the moneylender’s office, the staff should advise the potential borrower on the available plans and contractual terms, such as interest rates, processing fees, payment plan, and penalty fees. In some cases, especially for large amounts borrowed, the moneylender may require collateral.
For obtaining bank loans, one’s credit score is a significant contributor to the kind of interest rates the borrower will be charged, or if the bank will issue them the loan at all. The better the credit score you have, the lower the rate of interest the bank will set. However, licensed moneylenders focus slightly less on credit scores. Instead, moneylenders focus on the borrower’s ability to repay the debt, considering the borrower’s employment and income as key factors.
The payment plan for installment loans typically operates under a fixed timeframe. This means that a deadline for full payment is decided beforehand, after which, any outstanding fees will incur penalty fees. Some loans are based on a fixed amount every month, while some are more flexible, allowing clients to pay variable amounts each month.
Benefits of Installment Loans
Many loans operate with an installment system because it offers numerous benefits for the borrower. At a licensed moneylender, some advantages of installment loans include:
Low interest rates: Interest rates for installment loans at a licensed moneylender are usually relatively lower than those at banks.
Fixed interest rate: Another major benefit of the installment loan is that it offers a fixed rate of interest that does not tend to increase in the future.
Repayment within means: The most crucial reason for installment plans is how it reduces the pressure on borrowers to repay a large sum of money at once. Instead, borrowers can reduce their debt slowly but surely, within their abilities.
Understanding the types of loans, their benefits and conditions is the first step to borrowing from a moneylender. Avoid falling into the trap of unreasonable loan conditions or the cycle of debt by making wise choices and choosing only to deal with licensed moneylenders.