Let’s Define installment loan
As discernable from the word itself an installment loan is term for loan amount which is conceded to be repaid to the lender in an organised and regularised set of payments which are called installments .
To avail the loan a a written contract is aquiescenced by both the parties involved .A designated interval of time ranging from a few months extended up to as long as three decades for repayment of the loaned amount is also indoctrinated in the bond.
Also known as Installment credits ,these may or may not be associated with interest.
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Provision of Financial aids have been in since primitive times dating back to sixth century BC.
Such ancient contracts were sanctioned without any security to deposition to the creditor and a n interest of 20% to be payable in increments at an interval of one month.
To embark upon , in 1850 renowned companies like Singer set up with installment plans which later led to purchasing of equipment and even automobiles with installment loans by 1924.
HOW TO CALCULATE AN INSTALLMENT
For non-partisan manifesto of the deliverance of loan to the borrowers they must be equipped with a facile measure for cross- checking the value of installment with what they had been deposited per month .
A mathematical formula has ben designed to overcome the constraints of calculations for installments which are frequently called as EMIs (Equated Monthly Installment).
P – loan amount or Principle
R- rate of interest per month
N- number of monthly installment s
If rate of interest (R) is per annum then it is incurred as R/12×100.
Besides borrowers generally have to pay additional fees levied as application processing fee,loan origination fee and potential extra charges for late deposit of installments .
Beginning with Secured and Unsecured loans
Secured loans refer to collateralized loans like Mortgages where house being purchased by the borrower is the collateral .
Fundamentally they determine the asset or collateral that could be later utilized to restitute the amount of loan in time of borrower s inability to do the same.
Unsecured loans are not linked to collateral’s.
Other types are
AUTO loans– wherein borrower can buy a vehicle,new or used,with the loan amount.Rate of interest is fixed and tenure for submitting the installments can vary from two to seven years.
MORTGAGES– Loan money is used to buy housing and secured by the same.They may be completed in two to three decades.
STUDENT loans– These are flexible and congenial lending to pay for undergraduate, graduate and other types of post – secondary education.
Besides being unsecured,these loans unlike others need not be repaid at the onset . There is reliable timing after completion of education and even procurement of job to remunerate the loan.
PERSONAL loan – These are furnished without any particular underpinning by the borrower.These can be utilised for outstanding debt clearance or dealing with unanticipated issues.Most of them are unsecured loans.
BUY-NOW,PAY – LATER loans- Also called Point -of-scale financing.
These are offered by retailers wherein customer can spread the lump sum over few Installments rather than paying for the purchase right away.
PROS and CONS
Assumingly the entire lending process is invariably associated with incumbent leveraging as well as drawbacks.
Moving towards meritorious aspect
- A gigantic obligatory expenditure is taken care of rapidly.
- Borrowers are not oblivious to the upstanding loan amount and convenience of installments which plays a vital role in budgeting.
- Probability of refinancing referring to the condition where interest rates drop or credit score ameliorates . This aids to dwindle the repayment schedule.
- Installment loans are close ended that is one cannot add to the loan amount in case of upsurged requirements.
- Oppressive long term agreement s leading to financial troll in terms of penalties for inability to pay in time .
- Interest implementation is sometimes crucial depending upon the borrower’s selected category of installment loan and credit score in a paradoxical ratio.
FACTORS FOR APPLICATION
Lenders undergo comprehensive detailing from the borrower meetings inclusive of the requisites of type of installment loan applied for.
Down payments,term of loan , schedule of installments and their structure form a part of usual inquiry regime.Along with this review of borrowers credit worthiness is taken into account.
Installment loans can be tailored to meet requested requirements of the borrower.
LAST BUT NOT THE LEAST
Installment loans though being expedient to avail for fulfilling the desires or the needs , must be handled with special attention to eschew the incidence of defaults.
Irrefutably terms and policies of various comparable lenders should be kept in the cavement of mind before signing the dotted line.