What is an Installment Loan? Loan Basics
An installment loan is a loan that the borrower must repay with regularly scheduled payments or installments. Nowadays, such loans have become available to both regular consumers and businesses.
Modern long-term lending programs allow clients to significantly improve their living conditions, develop their business steadily, receive income from investments in investment projects, and purchase movable and immovable property. Banks are constantly simplifying the process of obtaining large installment loans for a long time. Collateralized and unsecured loans can be obtained by both individuals and legal entities by providing a certain set of documents.
Different types of installment loans
- Mortgage (a loan from a bank or other financial institution that helps a borrower purchase a home);
- Car loan (a sum of money a consumer borrows in order to purchase a car);
- Personal long-term loan (a non-targeted loan issued to consumers for various purchases, services, etc.);
- Land loan (a loan that helps a borrower to buy land with its subsequent processing and making a profit);
- Long-term business loan (a loan used to replenish assets, or to expand the production of a stably operating enterprise).
Long-term personal loans (mortgage, car loans, consumer loans) are provided to wealthy people. According to Personal Finance 101, terms and conditions have improved over the years, and the number of loans is constantly growing.
Installment loan requirements
Lenders typically provide installment loans to consumers who comply with the following eligibility criteria:
- Be at least 18+ years old;
- Be employed and have a steady income;
- Have good credit history;
- Be a US citizen or legal resident.
There may be other requirements that vary by lender.
Pros and cons of installment loans
Installment loans are an extremely popular type of financial assistance that can work even in the most unfavorable economic conditions. Long-term lending is extremely beneficial for banks, even though the borrower can repay the loan for several decades. The whole point is that the increase in the amount of overpayment is directly proportional to the increase in the loan term.
For example, if you take a mortgage for 15 years, the overpayment may exceed the value of the purchased real estate by 3 or more times.
Of course, there are certain risks for the lender: the depreciation of the collateral, the death of the borrower, but they are negligible compared to the possible profit. For the borrower, a long-term installment loan is not the most profitable option and it should be used only in cases of emergency, as well as when very large funds are required. You also need to assess possible risks and circumstances in order to ensure timely loan repayment because usually the amount of the collateral exceeds the cost of the loan and it will be extremely unpleasant to lose the collateral.
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