subject: What Kind Of Person Uses Installment Loans? [print this page] The loan comprises of specified amounts that are to be repaid over a predetermined repayment period. The payments can include both the principal and the interest or it may contain only the interest amount with the principal being paid in a lump sum amount with the final loan installment.
Installment loans are available in the market as unsecured or secured. An unsecured loan is riskier for lending institutions and are available at higher rate of interest. The loan is available only if the borrower has a good standing in terms of credit score, payment history and job status. Example; Personal loans, student loans, etc.
Secured loans are offered by the bank or a financial institution against collateral. The bank can even sell the property if the loan isn't paid back. The interest rates for secured loans are comparatively lower than unsecured loans. Example; mortgage home equity loan, home equity line of credit are secured loans.
There are certain advantages of dealing with installment loans which makes them a preferable choice. Borrowers are aware of the amount of monthly payment that they have to make and the time period allowed to pay off the loan.
So they can take the right financial move by planning a proper budget. Installment loans have extremely competitive rates which vary in the 5 to 7 percent range. Repaying an installment loan includes interest payments and after a certain period, an increasing portion of principal amount is also paid back.
This helps in steady reduction in the principal amount during the loan term.Installment loans are not just for the desperate or low class citizen. All kinds of people use them to help with anything they might need.
One of the most common groups that uses installment loans regularly is young people. Those that are just getting started in the financial world often do not have enough money to buy what they want.
Therefore, they require an installment loan so that they can get the things they need.
For example, most young people are going to be starting a career and need some form of transportation. Unless they have several thousand dollars saved up, they will have to get an installment loan on a car to get them to and from work.
An installment loan allows them to make small, manageable payments on a monthly basis instead of coming up with the money that it would take to buy the asset. Another group of borrowers that use installment loans are those that are financially savvy. Many people in this category have plenty of money and they got it by being smart.
When you can get an installment loan for something that you need at a lower interest rate, it may be to your advantage to use it. For example, let's say that a borrower in this category has $500,000 in savings.
They want to buy a house for $500,000 and the interest rate for a mortgage is 4.5%. As it turns out, they know of an investment that pays them 5% on their money. They would be better off to keep their $500,000, invest part of it and keep the rest in savings if they want.
They can get a mortgage and get the house that they want. They are making more money off of the interest than they are being charged with the mortgage. These kinds of strategies allow those with money to grow their wealth and stay in good shape financially. Many retired people are also great candidates for installment loans.
A lot of retired people are living on a low, fixed income. They have an annuity or a pension that is paying them a certain amount of money each month. They may be trying to live on Social Security and a small retirement plan that they have. In this case, an installment loan can be very beneficial to them.
If they need to buy a car or another big-ticket item, an installment loan can allow them to afford the monthly payments and get what they want. So, you can see that there are many benefits and reason to getting a loan like this. You should consider your reasons and options before deciding if it is the right loan for you.
