What Is an Installment Loan? Definition & Examples
Last updated 04/25/2022 byCamilla Smoot
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What is an installment loan?
Five types of installment loans
Auto loans: additional reading
- How Many Car Payments Can You Miss Before Repossession? This article will tell you how many installment payments you can miss, if any, before you lose your vehicle. It will also tell you other useful things to know if you’re considering a car loan or at risk of falling behind on car-loan payments.
- Should You Pay off Your Auto Loan Early? If you’re flush with cash and thinking about paying off your auto loan early, take a look at this article to see if doing so is a good idea.
How mortgages do and don’t resemble auto loans
- Complete Mortgage Guide. This is SuperMoney’s one-stop summary of all the essential facts about mortgages. Take some time to review it if you’re getting ready to shop for a mortgage.
- How Long After a Car Repossession Can I Get a Mortgage? When you lose mortgaged real property in the United States, it doesn’t usually resemble repossession. Repossession of real property does happen enough in other parts of the world to have prompted some questions about it. This article touches upon those while discussing the effects of car repossession on your prospects for a mortgage loan.
- The Differences Between Conforming Loans and Non-Conforming Loans. Three essential concepts you should master before or during your search for a mortgage loan are these: conforming loans, nonconforming loans, and qualified mortgages. This article addresses the first two.
- What Is a Chattel Mortgage? This is the type of mortgage that most resembles a car loan. If you finance a mobile living space with a chattel mortgage, failing to make your payments could get your living space repossessed. Read this article to learn more.
- Should You Pay Off Your Mortgage? Pros and Cons. Well, should you? Read this article to help you decide.
- What Is a Conforming Loan? Another look at the “three essential concepts” mentioned above. This article unpacks one of the three in great detail.
- What is a Qualified Mortgage? Another article in the “three essential concepts” trilogy. This covers the last topic and concludes your basic training in these essentials.
Installment loans and your credit score
Pros and cons of installment loans
- Fixed payments. Fixed payments mean you’ll be paying the same amount each month. This makes budgeting a lot easier. If you’re on a tight budget, you can choose to pay off the loan in a longer amount of time. This lowers the monthly payments.
- Fixed interest rate. Although there are some variable interest installment loans, most have fixed interest rates. While a variable interest rate could change month-to-month, fixed interest rates mean you pay the same each month. Similar to fixed payments, a fixed interest rate makes budgeting easier. Not just that, if the market changes, your interest rate stays the same. You may end up paying less than others in interest at times. If you have the choice, choosing a fixed interest rate instead of a variable interest rate will usually prove the more prudent course of action.
- High credit limits. Installment loans allow you to borrow more than you could with a credit card loan. This is great when you need to make a large, pricey purchase.
- Fixed interest rates. There are definite advantages to having a fixed interest rate. However, if the market changes, your interest rate stays the same. That means, if the interest rates fall, you may be stuck with a higher than necessary rate.
- No flexibility with due dates. There is little to no flexibility as to when you make your payments. Missed or late payments negatively impact your credit report, history, and score.
A tip from the pros
How do I apply for an installment loan?
- Government-issued state ID or license
- Proof of income, such as bank statements or pay stubs
- Your personal banking information
- Social Security number
What is the difference between an installment loan and a regular loan?
Can you pay off an installment loan early?
Will an installment loan hurt my credit score?
Is an installment loan the same as revolving credit?
- An installment loan is any loan paid back in consistent monthly payments.
- Installment loans include auto loans, mortgage loans, and personal loans.
- If you make your monthly payments on time, installment loans can benefit your credit score.
- Installment loans are great for those who are about to make a large purchase that they can’t pay for upfront.
Consider a personal installment loan to fund your new project
Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost, KSL.com, Deseret News, and more.
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