As a whole, Americans have a debt of over $13.2 trillion! As you can see, taking out loans and lines of credit is practically a way of life.
Maybe you’ve reached a point in your life where you need some extra financial help. One way to do so is to get installment loans.
How do installment loans work anyway? Read on to find all about them.
What’s an Installment Loan?
The installment loan definition is where you borrow a sum and pay it back regularly over a period of time. For example, you’d borrow $10,000 and make scheduled payments of $200 every month for however long it’d take to repay the loan.
There are several types of installment loans available. They include:
- Personal loans
- Commercial loans
- Auto loans
As you can see, “installment loan” is an umbrella term for various types of loans you can get.
How Do Installment Loans Work?
Generally, there are 2 types of installment loans: collateralized and non-collateralized.
With collateralized installment loans, lenders take on less risk. This is because if you default on payments, they can take the collateral.
In the case of mortgages, that’s your house. And in the case of auto loans, it’s your vehicle.
On the other hand, non-collateralized loans are harder to get since there’s more risk. You’ll have to have a decent credit score to get these. The interest rate is also higher on these to compensate for the higher risk.
In either case, you’d apply for the installment loans. Once your application is accepted, the full amount is dispersed into your account. You’d then make regular payments every month.
Do note that in some cases, you face a penalty if you pay off your installment loan early. So make sure to read all the fine print.
How to Apply
What’s great about these loans is you can easily apply from home. Because there are so many installment loans online, you’ll be able to quickly browse all the ones available to you and submit applications for the ones you’re interested in.
Do note that each application will usually result in a hard credit check from each lender. This can hurt your credit score, so don’t just apply for every single installment loan you can get your hands on.
Instead, take the time to do thorough research, make a list of the top ones you’re interested in, and whittle it down to just 1, maybe 2 to apply to. If you get rejected from those, then move on with the rest of your list, applying one at a time.
That way, you’ll do the least damage possible to your credit score.
Get an Installment Loan Today
Now you know the answer to the question: how do installment loans work?
Maybe you feel like they’re the right thing to give you the extra boost in achieving your milestones. In that case, make sure you do your research to find the best installment loans available.
Want to learn more about business and finances? Then take a look at the rest of our blog page!