When it comes right down to it, there are only two different types of loans. No matter what they are called, or how they are marketed, if you are borrowing money, it is either through Installment Loans, or Revolving Credit.
Installment loans are safer, structured, more secure, and more dependable. They offer fixed rates, an established repayment plan, and very few surprises. Mortgages, car and boat loans, even most personal or “signature” loans are installment loans.
Revolving credit is easier to get, but usually comes with higher interest rates and more fees. A revolving credit plan has no set repayment date, just a minimum monthly payment. The debt can revolve and recycle and build up over time, even if regular payments are made. Credit cards, payday loans, and car title loans are examples of revolving credit.
Secured vs. Unsecured
The vast majority of installment loans are secured loans. The money borrowed has been secured by a down payment and collateral, or in some cases by a co-signer. A secured loan will offer lower interest rates and a more lenient repayment plan. This is because the bank or lender feels comfortable the debt will be repaid.
But there is a growing segment of the financial industry that provides unsecured installment loans.
Unsecured loans do not have a down payment, or collateral, nor do they require a co-signer. Interest rates tend to be higher than secured loans because the lender is taking a bigger risk in making the loan.
In days gone by, only banks offered installment loans, and they rarely if ever offered unsecured installment loans. For people who don’t use banks, or people with bad credit or no credit, this left them with few options. Credit cards and payday cash advances were the only way for millions of Americans to get fast money when they needed it.
But not anymore.
Online Installment Loans
At its core, an installment loan is the most simple and structured type of borrowing for you.
You request a specific amount, and are in return given your repayment schedule – it combines principle and interest, and breaks them down into installment payments. How many installments varies, depending on the lender and the amount borrowed, it can be anywhere from 2 payments up to hundreds of payments.
The payment amounts and due dates are all decided upon up front, so both the lender and the borrower know exactly when the loan will be paid off. Some lenders offer more flexibility in their payment schedule, or a grace period for late payments, while others do not. Some lenders have a penalty for early repayment, while others don’t charge a fee for that.
Make sure you understand the loan, and try and find a lender who is willing to work with you on terms that you agree with