A way to borrow money is through an installment loan, which is often used for a single, expensive purchase like a car, house, or college tuition. After receiving approval from a lender, the borrower receives a lump sum and makes monthly payments, or installments, to pay back the loan over the course of a certain term. The best personal loan in toa payoh also attempts to provide a range of loans with different terms and interest rates.
Here is the information you need know about installment loans if you’re thinking about applying for one.
Installment loan types:
There are two primary types of installment loans: secured and unsecured.
Collateral, or someone’s asset or property, is required as security for a secured loan. If you default on a loan, the lender has the right to seize the collateral; for example, if you can’t pay back a vehicle loan, the lender may seize your car. One sort of installment loan that is frequently unsecured, i.e., does not require collateral, is personal loans.
The most typical kinds of installment loans you’ll come across are listed below:
- Individual loans: These installment loans can be utilized for a number of things, including debt relief, medical costs, house improvements, and weddings. In addition to online-only lenders that focus on quick transactions, you may find them at conventional financial institutions like banks and credit unions. Depending on your credit, personal loans are available in a wide range of quantities with a wide range of interest rates.
- Automobile loans: These installment loans are used to purchase automobiles. If you can’t make your payments, you risk losing possession of your car because they are secured using the vehicle as collateral. However, compared to unsecured loans, auto loans often offer substantially lower interest rates. For instance, the Federal Reserve reports that the average interest rate for a 48-month loan for a new car was 5.45% in the fourth quarter of 2019. The typical interest rate for a 24-month personal loan was 10.21%.
- Mortgages: Mortgages are a type of secured installment loan used to pay for homes. Your home is used as collateral, much like with auto loans, to protect the lender, keeping mortgage interest rates lower than those of unsecured loans.
- Student loans: These installment loans from the federal government or a commercial lender are used to fund higher education. Depending on whether they are federal student loans or private student loans, the interest rates, terms, alternatives for repayment, and forgiveness programmes change.
- Payday loans: These installment loans, marketed as a tool to help borrowers survive until their next income, are known as payday loans.
Thus, unlike revolving credit, such as credit cards, which offer a credit line from which to continuously draw rather than a single sum to repay, installment loans have a fixed amount to be repaid. When an installment loan is returned, the account is closed; but, with revolving credit, the money can be borrowed again.