What is an Installment Loan?

August 23, 2019 by marvin

An installment loan is a loan for a specific amount of money that is repaid over time by a set number of scheduled payments. Installment loan payments combine the principal loan amount with an interest rate. The loan term may be only a few months or as long as 30 years. As you make payments, the loan balance lowers. Installment loans are an alternative to payday and title loans, which require repayment of the entire loan all at once.

Examples of Installment Loans

Many traditional consumer loans are installment loans that are repaid over time by regular payments of principal and interest. A few examples of installment loan types include mortgage loans, home equity loans, student loans, and car loans.

How to Apply for an Installment Loan

To apply for an installment loan, you will need to be at least 18 years old and have a valid ID, a steady source of income, and an open bank account. Depending on the state you live in and where you choose to borrow, a lender will consider factors such as your current income, your ability to repay the loan, your credit score, and your debt-to-income ratio. Your debt-to-income ratio is calculated by dividing the total amount of your bills by your monthly income.

Once you're approved for a loan, your repayment schedule will be determined. You will pay a specific amount periodically (often monthly) and accrue interest at a daily fixed rate. Your loan principal and interest will be paid back over a scheduled period.

Representative APR 391%. Average APR for this type of loans is 391%. Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Implications of Non-payment: Some lenders in our network may automatically roll over your existing loan for another two weeks if you don't pay back the loan on time. Fees for renewing the loan range from lender to lender. Most of the time these fees equal the fees you paid to get the initial payday loan. We ask lenders in our network to follow legal and ethical collection practices set by industry associations and government agencies. Non-payment of a payday loan might negatively effect your credit history.

Calculate APR Rules in Your State Alternatives to Payday Loan For Military Consumers

Consumer Notice: A payday loan, also known as cash advance is a short-term loan given to the borrower until his or her next payday. Purpose of the payday loan is to provide the borrower a short-term financial relief. Payday loan is not a long-term financial solution. Borrowers who face debt and credit difficulties should seek out professional financial advice. Borrowers are encouraged to review local laws and regulations governing payday loans.

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