If you’ve been researching different forms of finance, you’ve probably come across a range of different lending products and lenders. It can be hard to sort through all the terminology and come to an honest conclusion about what loan is right for you. This can result in you agreeing to a financial contract that you don’t fully understand. For this reason, it’s important that you make sure to do as much research as possible.
A personal installment loan is a form of finance that has become very popular with borrowers around the country. But many people don’t understand what they are. Installment loans are simply a very basic lending product that is paid back over a fixed period of time. You borrow a lump sum of money from a lender, and pay it back with interest over a fixed period determined by the lender. It is a very straightforward way to borrow money.
This guide has been designed to be a comprehensive guide to personal installment loans. If you’ve ever wondered about this form of finance, this guide will provide you with all the information you need. We’ve been able to compile the data that every prospective borrower is looking for. Make sure to read the rest of this guide if you’re looking for answers to questions you have about personal installment loans.
Personal Installment Loans Vs. Term Loans
Personal installment loans and term loans are effectively the same thing. They are simply different terms for the exact same lending product. They are both standard loans that require you to borrow money from a lender and pay it back over a fixed period of time. You will be given a lump sum of cash, with an interest rate and period of time in which you need to pay back the loan. It will then be up to you to meet these financial obligations.
Remember, don’t get confused between these two forms of finance – they’re exactly the same thing.
Personal Installment Loans Vs. Credit Cards
People often compare personal installment loans to credit cards. This is because they are both forms of credit that are offered to regular consumers. Credit cards are different because they are a form of revolving credit. This means that you can use the money extended to you through a credit card once you pay it back. As long as you are able to meet your minimum payments, you will never have to fully pay off your credit card.
On the other hand, a personal installment loan requires you to pay back all the money that you have borrowed over a fixed term. This means that there is a pre-determined amount of time that you have to pay back the loan to the lender. There is no flexibility in terms of borrowing. If you want more money, you will have to apply for a brand-new loan. On top of this, credit cards also come at a much higher interest rate. Lenders know that you’re willing to pay a premium to have access to ongoing finance.
Who Prefers a Personal Installment Loan?
So, who prefers a personal installment loan in comparison to other forms of finance? As mentioned previously, credit cards are an extremely popular borrowing mechanism. But many people prefer personal installment loans for a variety of reasons. Credit cards can make it easy to fall into a high-interest debt. They carry higher interest rates and they allow you to continue borrowing without having to apply for new finance.
For this reason, many people who find it hard to pay off debt will find it better to have a personal installment loan. It makes it much easier to pay off the debt that you owe. In addition, interest rates are lower, which means that you won’t end up accumulating as much debt during your lending process.
Secured Vs. Unsecured Personal Installment Loans
There are actually two forms of personal installment loans. While they are similar in nature, the small differences actually dictate a large disparity between these two different types of loan. We will explore each of these forms in more detail below:
Secured Personal Installment Loans
This form of installment loan is secured against an asset that you own. It requires you to guarantee the loan with your home, car, or other valuable item. If you can’t pay back the loan, then the lender can seize the asset that you’ve secure it with to get back their money. They will liquidate your asset and take the money that is needed to satisfy your debt.
For this reason, this form of loan is considered much riskier for borrowers. You could end up having your home taken away if you’re unable to pay your debts. While these loans typically have much lower interest rates, they should only be used by borrowers who know they can pay back their debts on time.
Unsecured Personal Loans
Unsecured loans on the other hand do not require you to use an asset to guarantee the loan. If you end up defaulting on the loan, the only thing that will be impacted will be your credit score. On the other hand, these loans also come with much higher interest rates. This is because the lender is risking much more to lend you the money. They’re also much harder to get – if you want to get an unsecured personal installment loan, you may have to have a decent credit score to be eligible.
Other Forms of Installment Loan
If you are considering an installment loan, but you still don’t fully understand what they are, it can often be helpful to view other forms of installment loans to get a better understanding of the features included in this form of finance. Below we will outline other forms of installment loans available to consumers. There’s a high chance you’ve had one of these loans in the past.
This is one of the most common forms of installment loan on the market. Tens of millions of Americans have mortgages to help them purchase their homes. This also happens to be one of the longest forms of installment loan available – many mortgages are 30 to 45 years long. Which is extremely long when you compare it to other forms of finance.
This form of loan is also secured against the value of the home, which means that the lender can seize the property if you don’t make the right payments on it. You will also find that most interest rates for mortgages are variable – lenders know that interest rates will change drastically throughout the course of the loan as it is such a long term.
This is another of the most common forms of installment loan. These types of loans are also used by tens of millions of Americans to pay for their vehicles. Interest rates tend to be extremely low, as this form of loan is secured to the value of the car. Terms are also quite short – most auto loans have terms between three and five years.
Who Provides Personal Installment Loans?
There are a variety of different lenders that provide personal installment loans to their customers. The lender you choose will depend on the type of borrower that you are. We will explore the primary two types of lenders that currently provide personal installment loans in the United States. Pay attention to their key features and benefits so that you can make an educated decision on which lender is best for you!
Traditional lenders are typically brick-and-mortar banks. You probably have a bank account with a traditional lender. They’re the biggest part of the consumer lending industry in the United States. These types of lenders provide personal installment loans to millions of American throughout the country. They’re one of the best options for someone who is looking to work with a company that can provide a large amount of capital. They’re also great to work with if someone is looking for the strength and reputation of a large bank.
Online lenders also provide personal installment loans. Their lending process is much quicker and doesn’t require you to head to a branch to fill in a lengthy application. These lenders are also able to provide you with much quicker decisions – you can have money in your account within 24 hours of applying for finance.
Advantages of Personal Installment Loan
It can often be hard to decide if a type of finance is right for you. There is typically a lot of information to take in during the decision-making process. That’s why we’ve created a section exclusively dedicated to providing you with all the advantages of obtaining a personal installment loan. Check it out below:
- Low Interest – Personal installment loans tend to have lower interest rates than a lot of other forms of finance. For this reason, they are considered good options for people looking to try and save some money. If you want to avoid the high interest associated with many credit cards, a personal installment loan is typically a good option to work with.
- Structure – Personal installment loans also provide you with structure in terms of paying back the money that you owe. With credit cards, you can continue to borrow money once you have paid it back, which makes it harder to escape a debt trap if you have bad spending habits. With personal installment loans, you have a set timeframe in which you will pay back the loan – it’s better for those who need to plan.
- Customizable – You can decide if you want to tie your loan to an asset that you own, or if you want to pay higher interest to have your loan unsecured.
- Range of Lenders – There are a range of different lenders that you can choose from, which makes it easy for those who are looking to be able to choose from a variety of different finance companies.
- Improves Your Credit Score – If you’re a responsible borrower, having an installment loan will improve your credit score. You’ll find that if you pay back your loan on time without any hiccups, lenders will look much more favorably upon you in the future.
- Quick – This will depend on the lender that you choose, but many term lenders are able to get you the money that you want within a short period of time. In fact, many lenders can get the capital you need into your bank account in less than 24 hours. This is extremely quick in comparison to other financial products on the market.
Disadvantages of Personal Installment Loan
Just as there are many advantages to getting an installment loan, there also plenty of drawbacks. It’s important to consider these negative traits when you’re trying to decide if getting a personal installment loan is right for you. We’ve included some of the prevalent disadvantages below:
- Minimal Flexibility – You need to make sure that you know exactly how much money that you need to borrow. If you don’t, you won’t be able to extend your loan the way that you would with a credit card. You’ll have to apply for a whole new loan every time that you need financing.
- Complications – While some term loans are easy to obtain, others may take time. Credit cards on the other hand can be extremely easy with certain lenders. You may find that term loans can be painful if you choose the wrong lender.
Personal installment loans provide you with great access to cheap financing. They also provide borrowers with a set structure to pay back their debt. This is great for those who want to have a payment plan to help them pay their debt in a timely fashion.
The major downside to personal installment loans is having to choose which lender to work with. That’s why we’ve created a list of the best lenders in the industry. If you’re looking to work with a reputable lender that has a longstanding reputation in the industry, make sure to head to our homepage and check out our top picks. We love giving our readers the best opportunity to work with someone who is able to provide them with everything they’re looking for.
If you still have any questions about personal installment loans, check out our other content for more information!