A loan is a credit facility in which the lenders, i.e., banking and finance organizations, help the applicants by extending a sum of money, and charging an interest.
An installment loan, as the very term suggests, is a loan which can be repaid in parts at regular intervals. These loans can be applied for with the help of online forms that are available on the website of the lender. Once the form has been completed, it goes through the process of sanctioning. Then the sanctioned amount is handed over to the borrower.
Repayment of an installment loan implies that the total amount of loan, i.e., principal along with the payable interest, is divided into equal parts and is repaid to the lender over a period of time at regular monthly intervals.
Such loans are classified into different types according to their function, like home loans, auto loans, and educational loans. Today, most loans are installment loans, with a few exceptions, like payday loans.
Installment Loan for Short-term Expenses
An installment loan is a short-term loan, where the money borrowed has to be repaid in a short time period, usually 1 to 5 years. The only difference is, unlike other short-term loans, this has to be repaid in parts at regular intervals. A short installment loan can be taken for many purposes like purchasing a motorcycle, a television or any personal object.
One of the first factors that is taken into consideration by the lenders during the sanctioning routine is the credit history of the borrower. The credit history is a rating of the creditability of the borrower, evaluated on the basis of past loans that have been borrowed. The second factor that is considered is the periodic income of the borrower.
These applicants can be classified into two types, namely, employed people and self-employed. Self-employed people find it a little difficult to avail a short-term installment loan due to the fact that lenders are hesitant to avail these loans to self-employed people. In the case of such applicants, they have to prove their income projection to the lenders.
One of the common ways to do this is to submit a list of all the upcoming payments due from clients or customers, and also a list of reliable debtors. If a self-employed applicant has not already borrowed any other long or short-term loan, then the chances of the installment loan getting approved are very good.
Employed applicants, who have a pretty good credit history, usually find it easy to get approval for a short-term loan. Another factor that is to be considered, by both the lender and the applicant, is whether the loan is a secured loan or a non-secured loan. A secured loan is a loan for which the borrower has to pledge a collateral or asset with the lender.
In case of a default (cases where the loan and the interest are not repaid by the borrower), the lender is authorized to sell or dispose off the collateral in order to recover losses. Loans that have been availed to purchase assets, like cars, are simple to avail because the asset itself is pledged as a collateral.
An installment loan for people with bad credit, at times, requires a collateral. In case of a non-secured loan, the borrower does not have to pledge an asset. A non-secured loan is sanctioned for people who have very good credit history and also an assured income projection.
Repayment of this type of loan is supposed to be done in a short time, hence the name, short term. The repayment is usually deducted by the lender directly from the salary of the applicant, or from the savings account of a self-employed borrower periodically. Due to the short term, the interest on the loan is high, in comparison to other loans.
It is always advisable to check the total cost of the loan (principal + interest) and all the installments before actually applying for it. Also, one must assess if the collateral is reasonable or not.