What is an installment loan?
An installment loan is a loan that is repaid over an amount of time with a set number of fixed monthly payments. Interest rates on these loans and loan amounts may vary depending on various factors including but not limited to:
- Your financial history (credit bureaus report, credit scores)
- The term of your loan amount.
- The amount you borrow
- The lender and their terms and conditions
What are the types?
There are four common types of installment loans, and the one you may want to seek can differ based on your current need(s). Here are the four most common types of installment loans:
- Personal loans
- Student loans
- Auto loans
Personal loans allow you to pay for unexpected expenses and things that could impact your monthly budget. Student loans are loans that are designed to help students pay for their education and associated fees.
Mortgages are loans in which property or real estate is used as collateral. Auto loans are personal loans used to purchase an automobile. All these different loan types are different variations of installment loans.
Are installment loans payday loans?
No, Payday loans are small credit solutions around $100 to $1,000 with short repayment terms.
Payday loans also typically have very high interest rates and are paid in one lump sum on your next payday. These loans are typically for people with less than ideal credit and are illegal in some states.
Installment loans are typically for larger amounts from $1,000 to $100,000 with longer terms for repayment, typically 6 to 60 months with low-interest rates. Mortgages are typically for longer terms.
How did installment loans originate?
Installment loans were one of the earliest forms of consumer credit originating in the 1850s. The concept was invented by Singer, a sewing machine company.
Sewing machines were a huge labor saving device that women wanted, although the price point was too high for many of them to afford outright.
To counteract the high price point, the Singer Company offered financing to their customers at one dollar down a week. It was then the concept of installment loans were born.
What are the differences between installment loans and credit cards
Installment loans typically have closed end credit which means they consist of a fixed loan rate and amount. Also payments are usually equal month over month till the balance is paid. Credit cards typically have open end credit that is revolving with interest rates that can fluctuate.
How do installment loans work?
A lender provides an amount of money within a specified time period for repayment with interest.
For example, Jeff needs a loan for a new car because his old car broke down and needs a new car to drive to work Monday thru Friday.
If Jeff can’t drive to work, he has to take an Uber.
Jeff calculated his monthly budget and found taking an Uber every day isn’t a financially viable strategy.
So, as a long-term financial solution Jeff chooses to apply for an online installment loan to fix his car and is approved for a $3,500 loan with a term of 3 years and an interest rate of 24% resulting in a monthly payment of $137.31.
Jeff now is responsible for paying off his loan in monthly installments of $137.31 until he pays off his loan amount and interest over the term.
Pros and cons of installment loans
Here is a list of some of the advantages and disadvantages:
- Fixed interest rates
- Fixed monthly payments
- Not subject to prime rate
- Amount borrowed is fixed
- Potential fees and penalties
- May need collateral to secure
Where can you get an installment loan?
If you’re interested in applying for a loan offline you can visit any Mariner Finance branch. If you’re looking to apply for an online personal loan you can visit loans.marinerfinance.com
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