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Types of Installment Loans – 8 Installment Loan Types You Must Known

Installment loans have become a popular choice among borrowers. In this blog, we will delve into the types of installment loans and shedding light on how they work and how to compare them effectively.
Types of Installment Loans – 8 Installment Loan Types You Must Known
There are different types of installment loans that offer a predictable repayment structure, making budgeting more manageable for borrowers. Let's learn more about installment loans and how they work!
In this article

As financial needs continue to evolve, people often seek flexible borrowing options that provide manageable repayment terms. In this context, installment loans have become a popular choice among borrowers. Installment loans are a type of loan wherein borrowers receive a certain amount and repay it over a set period through regular, fixed installments. There are different types of installment loans that offer a predictable repayment structure, making budgeting more manageable for borrowers.

In America, installment loans are a popular type of consumer loan that allows borrowers to receive a lump sum of money upfront and repay it over a specified period through regular, fixed payments known as installments. Use Beem to get information on personalized rates and explore loan options ranging from $500 to $100,000, without impacting your credit score! In this blog, we will delve into the types of installment loans and shedding light on how they work and how to compare them effectively.

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What Are the Types of Installment Loans?

Various installment loans are available to cater to different financial needs and situations. Here are some common types

  • Personal Installment Loans: General-purpose loans with fixed payments over a specified term, often used for expenses like medical bills, home improvements, or weddings.
  • Auto Loans: Specifically for financing the purchase of vehicles. The car serves as collateral, and the loan is repaid in installments.
  • Mortgages: Long-term loans used to buy real estate. The property acts as collateral, and repayment can extend over several decades.
  • Student Loans: Designed for funding education expenses. They often have flexible repayment options and lower interest rates for students.
  • Debt Consolidation Loans: Aimed at combining multiple debts into a single loan, simplifying payments, and possibly reducing interest rates.
  • Home Equity Loans: Borrow against the equity in your home with a fixed repayment schedule. They are often used for home renovations or debt consolidation.
  • Payday Alternative Loans: Credit unions offer short-term loans as an alternative to high-interest payday loans.
  • Online Installment Loans: Provided by online lenders, with quick application and approval processes, and suitable for various purposes.

How to Compare Different Types of Installment Loans

Comparing installment loans is essential to making an informed financial decision and ensuring you get the most favorable terms. Here are some key points to consider when comparing installment loans:

  • Interest Rates: Compare different loans’ Annual Percentage Rate (APR). A lower APR means lower overall borrowing costs.
  • Loan Terms: Look at the loan duration. A shorter term may lead to higher monthly payments but lower total interest paid.
  • Monthly Payments: Assess if the monthly installments fit your budget comfortably.
  • Fees and Charges: Check for any origination fees, prepayment penalties, or hidden charges that might increase the loan cost.
  • Total Repayment Amount: Calculate the total amount you’ll repay over the loan term, including principal and interest.
  • Credit Requirements: Understand the minimum credit score and credit history needed for approval.
  • Lender’s Reputation: Research the lender’s reputation, customer reviews, and customer service.
  • Collateral Requirements: Determine if collateral is needed, especially for secured loans.
  • Flexibility: Check if the lender offers flexible repayment options or hardship programs.
  • Speed of Funding: If you need the funds urgently, compare the time it takes for loan approval and disbursement.

Carefully comparing these factors will help you choose the best installment loan that aligns with your financial goals and ensures a smooth borrowing experience.

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How Do Installment Loans Work? 

Installment loans work straightforwardly, providing borrowers with a lump sum of money upfront and allowing them to repay it over time through a series of fixed payments, known as installments. Here’s a step-by-step breakdown of how installment loans work:

Application and Approval

The process begins with the borrower applying for an installment loan from a lender. Depending on the lender’s offerings, this can be done online, in-person, or through a mobile app. The borrower typically needs to provide personal information, such as their name, address, employment details, income, and social security number. The lender will evaluate the borrower’s creditworthiness by checking their credit history and score and their income and debt-to-income ratio.

Loan Terms and Amount

Once approved, the borrower will be presented with the loan terms, including the interest rate, repayment period, and the total loan cost.

Receiving the Funds

After accepting the loan terms, the borrower will receive the approved loan amount, either as a direct deposit into their bank account or as a check.

Repayment Schedule

The borrower agrees to repay the loan in fixed installments over a specific period, usually monthly, but it can vary depending on the loan agreement. Each installment includes both a portion of the principal amount borrowed and the interest charged on the outstanding balance.

Fixed Interest Rate

Most installment loans in America come with a fixed interest rate, meaning the rate remains constant throughout the loan term. This offers predictability to borrowers, as their monthly payment amount won’t fluctuate.

Timely Repayment

Borrowers are responsible for making timely payments each month for the loan term. Make timely payments to avoid late fees, which can negatively impact the borrower’s credit score.

Loan Completion

Once the borrower completes all the scheduled payments, they will fully repay the loan, and the debt will be considered satisfied.

Impact on Credit Score

Timely repayment of installment loans can positively impact the borrower’s credit score, demonstrating their ability to manage credit responsibly. On the other hand, missed or late payments can negatively affect their creditworthiness.

Top 5 Installment Loans

CompanyAdvisor RatingMinimum Credit ScoreAPR Range Loan Amounts
SoFi4.0650 8.99% to 25.81% with autopay$5,000 to $100,000
Light Stream4.06607.99% to 25.49% with autopay$5,000 to $100,000
Landing Point4.06007.99% to 35.99%$2,000 to $36,500
Upgrade3.55808.49% to 35.99%$1,000 to $50,000
Universal Credit3.558011.69% to 35.99%$1,000 to $50,000
Table 1.0: 5 best installment loan available in the USA

Conclusion

Installment loans are versatile financial tools that can address various monetary needs. Whether funding a significant purchase, covering educational expenses, or consolidating debts, installment loans provide a structured approach to borrowing. When considering types of installment loans, it’s crucial to research and compare various options, ensuring you choose a loan that aligns with your financial situation. Before deciding, remember to assess interest rates, repayment terms, and additional charges. Responsible borrowing and timely repayments will meet your immediate needs and contribute positively to your financial well-being in the long run.

Use Beem to stay organized and manage your payment if you need financial assistance. Try the Beem app and get the best loan options ranging from $500 to $100,000 for your needs.

Frequently Asked Questions

1. Are Installment Loans Suitable for Bad Credit Borrowers?

Yes, some lenders offer installment loans to individuals with less-than-perfect credit. However, they may come with higher interest rates and more stringent terms.

2. What Happens if I Miss an Installment Payment?

Missing an installment payment can lead to late fees and negatively impact your credit score. It’s best to inform your lender if you foresee any payment issues.

3. Can I Prepay an Installment Loan?

Yes, many installment loans allow prepayment without penalties. Doing so can reduce the overall interest and pay off the loan earlier. However, verify with your lender beforehand.

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Author

Picture of Raman Gujral

Raman Gujral

An achievement-oriented professional, Raman has 10+ years of experience in B2B SaaS and B2C products across Fintech, Telecom, Digital Media, Social Media and Logistics domains. Defining and communicating product vision and strategy, product roadmap development, product positioning, and data analysis, he is also an expert in health insurance and personal loans content.

Editor

This page is purely informational. Beem does not provide financial, legal or accounting advice. This article has been prepared for informational purposes only. It is not intended to provide financial, legal or accounting advice and should not be relied on for the same. Please consult your own financial, legal and accounting advisors before engaging in any transactions.

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