What is a Personal Installment Loan?By Jason Ramin
You can get all types of loans these days. Loans that cover cars, homes, school expenses, and more. There are also many things to be aware of when you take out a loan. Depending on what type of loan you take out, your interest rates will vary, and the amount of time you have to pay off the loan will change, as well as how much you owe in payments. It’s a lot to keep track of and remember.
Amid all the different types of loans, some of the most common include installment loans, also called personal installment loans. What is a personal installment loan? If you’ve never heard of an installment loan, keep reading to find out more. You may surprise yourself with how much you already know!
For the most part, the types of loans available fall into two different categories: revolving lines of credit or installment loans. Installment loans are essentially any type of loan where you as the borrower opt to make regular, set payments or installments during a fixed period of time to pay back a loan.
What Can an Installment Loan Be Used For?
If you qualify for an installment loan, you can use the money from the loan to pay for big ticket items such as a car, a college degree, and even a house. Take a look at a few of the most common installment loan uses below, which are split into groups that include personal installment loans, auto loans, and mortgage loans.
Personal Installment Loans
A personal installment loan is most often applied to consolidate debt on outstanding credit or debit card charges, but you can also take out a personal installment loan to pay for something like a vacation or other personal, discretionary uses.
Other loans, such as payday loans, are used for emergency situations. But personal installment loans differ from these other loans in that they can be taken out for the sole purpose of building up good credit. And because personal installment loans have a fixed interest and pay rate, they are often easier to work with and pay off as opposed to typical credit card debt.
If you’re looking to finance a new car, you’ll have the option of taking out an auto loan. Auto loans are a form of installment loan because you set a fixed rate of payment that you pay each month toward paying off your car.
Once again, approval for the type of installment loan you’ll get on your car will depend on your credit score and your financial history.
Mortgage loans are a type of long-term installment loan. Home mortgages are large sums of money, borrowed in large amounts (usually greater than $100K). You can pay a home mortgage loan off over the course of anywhere from 15 to 30 years. If you’re using an installment loan to pay for a home mortgage, your interest rate and the amount you’ll pay regularly will be in part determined by your credit score and financial history.
What’s the Difference Between an Installment Loan and Revolving Credit?
Hopefully, it’s become clear as you read through the above information that an installment loan is a loan that has a fixed rate of pay which the borrower makes over an agreed amount of time. This is what defines an installment loan: set, installed payments.
Credit cards often feel like installment loans because you make regular, monthly payments on outstanding debts, right? The reality is actually the opposite. Don’t be tricked into thinking credit cards are installment loans. They aren’t! Credit cards are part of what is known as revolving credit.
Revolving credit is a predetermined amount of money you can draw from and then pay back. When you open a line of credit, you’re given a fixed amount for which you can use the card to pay. That’s the key difference between an installment loan and revolving credit: any amount for the specific loan vs. a fixed amount on your line of credit.
Find out more about how personal loans work and see if PersonalLoans.com can connect you with a loan offer that can work for you today!