What is an Installment Loan?
Installment loans, a generic term used for most of the personal and commercial loans. The types of loans given to the borrowers with a scheduled payment date which are mostly on a monthly basis are referred to as monthly installment loans. Each payment conflates a part of the principal amount and the Interest amount. The interest amount varies from banks to banks & loan taken for the time period.
Nature of the Installment Loans
Nowadays, for more profit, the banks have started giving away loans on different things such as Auto Loans, Home Loans, Furniture Loans, Personal Loans, Mortgage Loans, etc. even Cash Credit and Overdraft are certain kinds of loans provided by the bank to its borrowers. As from the name one can make out that Auto Loans are given to a lender for buying cars, bikes or chassis of heavy vehicles and Home Loans are for buying or making a structure on a legally owned land. The building can be used for personal or commercial use. In the case of all these loans, the lender has to pay a fixed amount to the bank monthly basis.
Personal Loan vs. Mortgage Loan
Personal Loans are given to the borrowers on the basis of their credit score as confirmed by jdbcfoundation.org that is, the higher the credit score worthier are they to get a Personal Loan. Personal Loan is non-collateralized whereas Mortgage loans are collateralized. Mortgaged properties have to be those properties which have a higher valuation than the loans given. If the lender is unable to pay it then his mortgaged property or collateral property will be taken by the bank and auctioned in the open market to recover their loan amount. All the above loans mentioned above have a fixed rate of interest that is, the rate of interest will not change in the midst of the repayment of loans.
Steps to Follow for an Installment Loan
- Talk to different banks and check which bank or finance company charges the minimum rate of interest.
- Keep an eye on the processing fee, insurance amount charged for the loan recovery and other hidden charges.
- Finalize on the down payment for the loan and time taken for repayment, monthly scheduled date of the loan installment.
- Apply for the loan by filling out an application providing your personal and professional details. Also mention the type of loan required that is, Auto Loan, Personal Loan or Mortgage Loan.
- Provide a self-attested photocopy of personal ID Card, bank statement (minimum six months), Form 16 (C), IT files for the last three years.
To get rid of the loans some forecloses the loan earlier than the proposed time, it saves money as the interest for the remaining months is waived off. In some cases, a penalty is charged on fore-closing the loans. So, it is always better to have knowledge of these things before the loan disbursal.
Advantages & Disadvantages of an Installment Loan
The advantages can be as follows:
- They are flexible and can be made as per the need of the borrower.
- Even without having money desires can be met such as owning a car, house, materials for business, etc.
- Even though the money is in hand, it is better to keep it for an emergency. Installment loans help to keep cash in hand.
The disadvantages can be as follows according to jdbcfoundation.org:
- Once the loan is taken the lender is chained to a long term financial obligation.
- Having a fixed rate of interest, even if the market’s interest rate has gone down still the borrower has to pay more interest.
- If the payment cannot be done then the credit score will go down leading to no loan opportunity from other banks. If a property is mortgaged then that will be taken away by the bank for the loan recovery.