How do Personal Installment Loans Work?
Personal installment loans are similar to installment loans for car payments and mortgages. This type of credit is mostly extended to those with impeccable credit and those that offer the lowest financial risk to the lender. There are secured and unsecured loans available in installments. The main difference is that unsecured loans do not require any collateral or deposits. Secured loans are often secured with homes or vehicles as collateral.
The main benefit of personal installment loans is that the payments are fixed. The monthly payment is determined by the amount of the loan plus the interest rate and is then divided by the available terms options for repayment. Installment payments are due on the same date every month.
Many lenders offer automatic billing and direct withdrawals for repayment. This is convenient as there are no worries about missing a payment or making late payments.
Paying Debt Off Faster
Personal installment loans do not have penalties for paying balances off in full. You can also make more than the minimum payment due. This helps to pay the loan down faster. If possible, make double payments every month.
Interest Rate Differences
The interest rates do vary on personal installment loans. Unsecured loans typically have a higher interest rate because there is no collateral assigned to the loan. This is a bigger risk for the lender. Secured loans have items listed such as homes, cars and other items of value that can be seized should the borrower default on the loan.
Personal Line of Credit
In some cases, a personal line of credit is offered instead of an actual loan. These are similar to revolving credit accounts. Consumers are given a limit to borrow against. The difference here is that once funds are paid back, they can be borrowed again and the cycle continues. In this situation you are only charged interest on the amount borrowed rather than the entire value of the line of credit. This is often a better option for consumers since they are essentially borrowing on their own terms.
Most personal loans are set for repayment over a period of 12 to 18 months. These terms are convenient for the lender as most personal loans are several thousand dollars but are not typically high dollar amounts. Speak with the lender about the available terms for repayment as some may offer longer repayment periods. Compare the payments and interest rates of both unsecured and secured personal loans before agreeing to the arrangements.