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Defining an installment loan

By David Pilley on March 3, 2011

dominoes-(1).jpgIf you like structure and you don’t have the entire amount of money to buy something, you might be interested in getting an installment loan. You might be able to handle an installment loan better than a payday loan because of a payment schedule that is set up when you get the loan.

An installment loan might sound like a payday loan, but it is much better for you in the long run. Basically, it’s a sum of money repaid over a fixed period of time. Unlike a payday loan, where the entire amount plus interest is due when you receive your next paycheck, an installment loan is paid back over the course of a few months to a few years. The payments are amortized, meaning the plan is set up in such a way that every monthly payment you make is exactly the same.

With a typical consumer loan, the amount of money ranges from a few hundred to a few thousand dollars. If the loan is a small amount, your credit history is rarely taken into account. The most important factor in getting an installment loan is having a reliable source of income. If you have that, then paying the loan back on a schedule should not be a problem.

Car loans and mortgages are also types of installment loans. These loans involve a higher sum of money, and good credit is a factor in determining the terms of these loans. They also entail much more time, meaning more interest is involved.

Your credit history, however, can play a role in determining the loan’s interest rate. The better your credit, the lower the interest rate you may receive. Of course, if you can make more than the minimum on your monthly payments, the loan’s payback term will be shortened, and the amount of interest you pay can be significantly less than for someone who pays just the minimum.

Installment loans are a safer alternative to payday loans and credit cards because you’re not being charged exorbitant amounts of interest or late fees. The repayment plan is scheduled in such a way that you should be able to make each payment on time without being late. It’s simple: pay (at least) the stated amount each month over the specified time period, and no penalties will be assessed.

Last, but not least, there are multiple places you can get an installment loan. Shop around, whether in person or online, and compare offered amounts and interest rates before signing a contract. Also make sure the company you’re doing business with does not have a bevy of consumer complaints. If you know what you can afford and you know what lenders are offering, you should have no trouble in paying back your installment loan, and your credit score should improve as a result!
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