What is an Installment Loan?
Installment loans are the new trend in the loan industry, but they’ve really been around for ages without people knowing it. The term “installment loan”, at its core, simply refers to a loan that you pay back via multiple payments (or installments) rather than one lump sum. To this end, mortgage payments and car loans are actually forms of installment loans, which of course are nothing new.
Ok Ok, But What are “Installment Loans”
Outside of the strict definition of “loans paid back via installments”, the trendy term “Installment Loans” that has become all the rage recently refers to a sort of extension to payday loans or personal loans. Many people have moved on from traditional payday loans and personal loans and are targeting Installment Loans for their needs instead. These loans, unlike payday loans which typically debit your bank account after your next paycheck, are paid back over time. One major advantage this allows over traditional payday loans is that it allows the lender to loan out more money as they are not limited by the amount that the borrower can afford to pay back off their next paycheck.
Why Should I Get an Installment Loan?
There are many advantages to installment loans. The first, as mentioned above, is that it is much easier to get more money. Payday loans naturally limit the borrowers to the amount that they can afford to pay back on their next paycheck, which is typically as soon as two weeks away. Installment loans dodge this restriction by allowing the borrowers to pay over time.
In addition to more money, installment loans also typically allow you to have lower payments. Since you’re spreading your loan repayment over a longer period, each payment will be for a smaller amount and you won’t be in as much risk of entering financial trouble.
Another big advantage of installment loans is their typically fixed interest rates. Some people morph their payday loans into installment loans by repeatedly filing for extensions. Each time the borrower asks for an extension their APR goes up and they end up paying more in interest as a form of “punishment” for not repaying the loan quickly. Since installment loans are built to be paid over time your APR does not go up as time goes on. The APR you agree upon in the terms of your loan is the APR you pay as the weeks or months blow by.
More and more, people are turning to installment loans as a way to get the money they need. Many people are using them for small business loans, personal loans, as a more prepared alternative to payday loans, and even a less risky form of open credit. Many people tend to get into financial trouble with credit cards since their limits can often be very high and interest rates quickly skyrocket if they are not repaid the same month. Installment loans as a form of credit work to limit the amount of financial debt the buyer can get into while at the same time making sure they are not surprised with sudden APR increases and hidden fees.