What is an “Installment Loan”? Fig Answers!
Installment loans are all around us, but what exactly are they? Fig answers with the full breakdown!
An installment loan gets its name from the payment type: you repay your loan with a number of installments, rather than paying it off all at once. The number of installment payments and their dollar amount is usually fixed, meaning you have a set schedule with the same $ dollar size payments each time you pay down the loan.
Fast Fig Facts: Installment Loans!
- When you take out an installment loan you have decide how exactly much money you’re going to borrow
- Installment loans are usually paid off in equal-sized payments, called installments, which helps you budget and prepare
- The “term” of a loan is the amount of time you have to pay off your balance. If you have a 3-month term, you repay your loan over 3 months!
- Repayment for most installment loans are on a monthly schedule
- Installment loans usually have lower interest rates and more flexible policies than payday loans.
- The borrower repays part of the principal borrowed, and interest on the loan with each payment
- You can get installment loans online, through mobile apps, or at brick-and-mortar locations
- Auto Loans
- Home Mortgages
- Personal Loans
Examples of Installment Loans
When you choose an installment loan, you decide how big or small your loan amount will be! You may not realize, but you could actually have an installment loan out right now. Types of installment loans include auto loans, home mortgages, personal loans, and student loans!
Auto loans are usually monthly installment loans, with terms ranging from 12 to 96 months. When discussing with your auto lender, see how the term will affect your monthly payment amount and interest rate. Usually a longer term loan has lower monthly installment payments, but higher interest rates. Aka, if you buy a car with a 56-month loan, you end up paying more in total than how much you’d pay total on a 24-month loan, even if your monthly installments are lower.
Home mortgages are installment loans used to purchase homes. These are longer term loans, with a range of 15 to 30 years, with monthly payments like rent payments.
Personal loans can also be installment loans! These loans can range from 3 to 96 months, and can be used for various needs, such as paying off unexpected expenses like medical bills or a car repair. Personal loans do not require collateral, unlike auto loans which collateralize your car, or mortgages which collateralize your home.
A Fig Loan is an installment loan, where all payments are the same size and the interest rate remains the same over the loan term (fixed interest rate). An average Fig Loan is paid off in equal payments over a period of 4 months. The exact length of your loan, repayment schedule, and number of payments will vary depending on your state.
Benefits of Installment Loans
Installment loans are easier for borrowers to budget for because they usually come with predictable payments. With a fixed interest rate, you’ll know how much you owe every month until you pay off your loan, and you can avoid missing payments. At Fig, we make sure you never have an unexpected change to the amount you owe.
Another advantage of installment loans is their flexibility. You can tailor your loan to your specific needs in terms of the loan amount and the length of time you need to repay your loan. When shopping for an installment loan, make sure your monthly payments fit your budget. At Fig, we analyze your earnings to make sure an installment payment works with your income, so you can handle any financial emergencies.
Many installment lenders also report to the credit bureaus, so making your payments on time can help you build your credit so that over time, you can qualify for more traditional loans or credit cards. At Fig, we report all three major bureaus!
Finally, installment loans provide the peace of a final pay-off date. You know how many payments you need to make and how long it will take for you to pay your loan off in full.
Downsides of Installment Loans
Nothing’s perfect, and there are some potential drawbacks to installment loans as well. Once you take out an installment loan, you cannot increase your loan amount, or take out more money like you can with a credit card or line of credit. If you want to borrow more money, you will have to take out a new loan, or refinance your loan.
Fig allows you to refinance your loan when you have one loan payment remaining, but a new loan is never guaranteed. Overall, when shopping for an installment loan, make sure you know exactly how much you need to borrow.
The other main disadvantage of an installment loan is that you are locked into a monthly financial agreement. If you miss your scheduled payments or default on your loan, your credit score will be negatively affected, and you may have to surrender your collateral used to secure your loan.
The final potential drawback you should be aware of is that many installment loans come with added fees and penalties. Some lenders require you to pay application fees and credit check fees, or even prepayment penalties, which require you to pay a fee when paying the loan off early.
Keep in mind, Fig never charges any late fees or other hidden charges. We also have no hard pull on credit, so your credit score is not affected when you apply for a loan with us!
The Bottom Line on Installment Loans
Make sure you understand the terms and conditions of the loan you are considering. Understand the length of the loan, number of payments, and cost of each payment so you can thoughtfully select the best installment loan for your individual situation!
If you have more questions about the different types of installment loans available, or you want to know more about how installment loans can help your credit, give us a shout at email@example.com, Facebook, Instagram, and Twitter.