What Is An Installment Loan?

What Is An Installment Loan?

What Is An Installment Loan?

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An installment loan is one of the most popular loan types but many borrowers apply for installment loans without fully understanding how they work. Similar to any other loan type, installment loans can affect your credit, feature a qualification and application process, and can provide funding for larger purchases. But what is an installment loan and how do borrowers get their hands on one?
In this article, we’ll explore the definition of installment loans, common installment loan types, as well as some of the most common questions borrowers might have when learning about installment loans. With the help of SAIL Loans, borrowers can secure funding with full knowledge of what to expect down the line.

Installment Loan Meaning & Definition

The definition of an installment loan is fairly simple. An installment loan is a loan in which the borrower sets a specific loan amount that they receive all at once that they repay over a fixed number of payments, or “installments”. It’s common to see installment loans that feature fixed payment amounts as well, so the payment never changes throughout the loan’s lifespan. For those with fixed payment amounts, borrowers can avoid interest rates affecting the loan’s repayment amount over time. An installment loan is essentially a repayment process, so a borrower might seek an installment loan for various reasons simply due to the desire to spread out repayment equally over time.

Examples of Installment Loans

Now that we know what an installment loan is, let’s dive into how these loans can look specifically. Borrowers seek installment loans for a large variety of purposes simply due to the loan’s repayment style for those making larger purchases. Some examples of installment loans include: 

Home Loan

For borrowers looking to learn what an installment loan is for the sake of purchasing a home, they can anticipate paying their mortgage with a fixed interest rate over a large time span. These loans are typically repaid within 15 to 30 years and if the borrower misses too many payments they risk the chance of losing their installment loan. Many home buyers will also look into a second mortgage, known as a home equity loan, which is an installment loan. 

Auto Loan

Similar to a home, a car can be one of the larger purchases an individual can make in their lifetime. Auto loans are another common example of installment loans being used. Borrowers will typically borrow the value of the car or vehicle and make monthly payments based on the price and the loan’s specific interest rate. An auto installment loan takes less time to pay off and is usually taken care of within two to four years. Similar to a home, if the borrower misses too many payments they risk the chance of their vehicle being vulnerable to repossession.

Student Loan

One of the most popular types of loans discussed is a student loan, which is another example of an installment loan. Student loans are considered installment loans because former students will repay them in regular installments over a longer period. Interest rates for student loans can work differently, with either variable or fixed interest rates. It’s common to find student loans that feature a time after the borrower has received the money where interest grows but the borrower is not forced to make monthly payments yet. 

Savings and Installment Loan

Savings and installment loans are designed to provide an affordable loan option to those who need a loan who might still be strengthening their credit. A savings and installment loan seeks to kill two birds with one stone as borrowers can receive a loan while also building up their savings over time. This is a type of installment loan that is paid back through installments and while the borrower pays back the loan they also build a savings account. Once the borrower pays back the loan in full, they receive access to those funds. 

Personal Loan

Outside of the common scenarios explored above, a personal loan used for any other reason can also be an installment loan if the borrower would prefer this loan type. While the loan amount will vary widely, the repayment will typically be within two to seven years. Repayment will be based on the lender determining the borrower’s qualification and interest rate by looking at credit history and other debts. Many of these loans might feature a savings account or asset that can be used for collateral for the sake of garnering a lower interest rate. 

Installment Loans Explained: Common Questions Answered

While we’ve explored the definition of an installment loan and reviewed a few of the most common installment loan examples, it’s still normal to find borrowers with questions about how installment loans work and how they can get started. Here are a few of the most common questions and answers surrounding installment loans. 

What are the Benefits of Installment Loans?  

Borrowers might prefer an installment loan because they provide access to big-ticket purchases, feature predictable payment schedules and payment amounts, and offer the peace of mind of knowing the date that the loan will be paid off. 

What are the Disadvantages of Installment Loans? 

Any loan can come with a few drawbacks. The most common issue experienced with an installment loan is the fixed loan amount. Borrowers cannot add to the amount of the loan without applying for a separate loan. 

Does an Installment Loan Affect Credit? 

Each installment loan service will have a unique qualification process, but there are some installment loan options that forego traditional credit checks and do not require spending reports to determine eligibility. Applying for many loans will require a credit check which may or may not cause fluctuations within a borrower’s credit score temporarily. On the flip side, an installment loan could strengthen a borrowers’ overall credit score if they make timely and accurate payments. Similarly, if a borrower misses or makes late payments regularly they can anticipate their credit score lowering dramatically. 

Who Qualifies for an Installment Loan?  

Anyone can apply for an installment loan, but qualification is typically dependent on a few factors. For interested borrowers, they should seek a consistent income source as well as ensure they have access to a valid checking account, a valid ID, and a working phone number for contact purposes. 

How to Receive an Installment Loan

Now that we’ve answered the most common questions for those learning more about installment loans, let’s dive into how to get your hands on one. The process of receiving an installment loan is fairly simple. Here are the basic steps: 
  • Shop the Market: There are countless lenders out there willing to navigate the installment loan process, so comparing and contrasting these different loan options is crucial for guaranteeing you’re getting the best interest rate and offer terms. It’s also an easy way to identify less expensive alternatives to an installment loan, such as a separate line of credit or low-interest credit card. 
  • Begin the Qualification Process: The pre-qualification process for an installment loan is the process of reviewing the different loan amounts that might be available to you. It will also be the point in which you identify the interest rates and payment terms that would impact credit the least so that borrowers can review how the loan will impact their monthly budget. This is also the point at which borrowers might consider offering collateral for a lower interest rate to optimize their loan application.  
  • Apply: Installment loans are available through banks, online lenders, or credit unions. Application time will vary based on the lender and specific loan, but SAIL Loans boasts a quicker and more expedited application and qualification process. 

Apply for an Installment Loan Today with SAIL Loans! 

Installment loans are one of the most popular types of loans. Understanding what an installment loan is and examples of installment loans is a simple way to wrap your head around if an installment loan is the right choice for you. Interested in applying for an installment loan? SAIL Loans simplifies the process of qualifying and getting approved for a loan, regardless of what purchase might be on the borrower’s horizon. 
With a simple application process and quick funding, SAIL Loans makes the process of building savings and securing funds accessible and easy. Boasting online and in-store assistance, SAIL is here to help. Contact us today to learn more! 
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