Personal loans are a type of installment loan. Installment loans all come with their own set of terms, fees, and payment options. They live under the umbrella of loans that result in installment debt, whereas credit cards live under the umbrella of revolving debt. If you’re seeking a personal loan, you’ll be utilizing a type of installment loan.
An Overview of the Types of Installment Loan
There are a lot of different installment loans, but generally speaking: Most fall under these following 4 categories.
- Auto Loans. As the name suggests, auto loans are used to pay for automobiles. Most loans have terms that are between three and five years long.
- Mortgage Loans. Buying a home? This loan will help you do so. Typically issues in 15-30 year time periods, these installment loans take the longest to pay off. Borrowers make payments until the loan is paid off in its entirety: taxes, principal balance, and interest.
- Payday Loans. Payday loans are short term loans with high interest. They are best reserved for emergencies or unexpected expenses, as they require quick payoff. If a borrower does not have the ability to pay the payday loan off in the given terms, it can cripple the borrower.
- Personal Loans. Personal loans are typically issued in terms of 1-8 years. These dynamic loans typically do not require a borrower to put up collateral but do come with higher interest rates.
In most cases, you’ll be able to easily see which kind of installment loan will be best for your cause. You can find nearly every type of installment loans online, so get on the web and do your homework. Speaking of… Finding a good installment loans starts with knowing what to look for in a lender.
What to Look For When Shopping for Installment Loans
Unfortunately, not all lenders are created equal. The reality is that there are a lot of untrustworthy companies who prey on borrowers with unrealistic terms and hidden clauses. In order to find the right installment loan, you want to make sure the company offering the loan can:
a. Explain everything to you. If you’re speaking with a loan officer that doesn’t take the time to explain the terms of the loan, it’s time to move on to the next company. It is quite literally their job to make sure that borrowers understand the terms of the loan. If they can’t take the time to explain the loan to you, they’re not going to treat you well.
b. Offer insight. Not sure which loan is going to be best for you? The company you’re talking to should be able to guide you on the loan that best fits your lifestyle, credit score, and cashflow.
c. Provide customer service after the loan has been issued. This is why it’s important to research how other people feel about the loan company you’re considering borrowing from. Take the time to look at the company on TrustPilot, Google Reviews, and social media channels like Facebook. Get a good understanding of how past borrowers felt about using the company.
d. Offer competitive rates. In an ideal world, a potential lender is able to share with you their rates and how they’re competitive in the market. Unfortunately, the reality is that those lenders will have selected the competitors they’re willing to share with you. Much like reviews for customer service, do your research to find interest rates and terms of various lenders.
Long story short? If you don’t feel the lender is being transparent with you, move on. There are dozens of lenders (offline and online) and you need to pick the one that values you as a borrower.
Conclusion
If you plan on taking ANY loan, it’s important to do your research and protect your financial plan. Loans may help you build credit or get over a personal hurdle such as an unexpected car repair. But they can also leave you in a hole if you’re not prepared to meet the terms of the loan. Do your research. Don’t sign before you understand everything in the loan agreement. A trustworthy loan company will be happy to make sure you understand the terms and fees associated with the loan.
Have you used installment loans? What was your experience? Share your story in the comments.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.
