An estimated 56% of Americans don’t have enough in their savings to cover a $1,000 bill. Emergencies happen, whether it’s an unexpected repair or a medical bill. Those that don’t have the funds usually take out a loan.
One common type is the installment loan, which can cover expenses such as medical bills, travel, emergencies, and more.
Here’s what you need to know about installment loans to decide whether it’s right for you.
What Is an Installment Loan?
Installment loans are credit accounts that enable people to borrow a predetermined amount and pay it back in small, set amounts each month. They usually have a fixed interest rate, and the installments remain the same each month. These loans may or may not have interest.
When you get an installment loan, you receive the money in a lump sum or the item you’re borrowing. Over time, you pay it off by following a set payment plan.
Once you’ve paid back the amount, the account is closed.
Types of Installment Loans
Installment loans may be either secured or unsecured. You may need an asset as a measure of protection to ensure you pay back your debt.
There are many options out there if you’re looking for an installment loan online as well. For instance, you can apply for a title installment loan.
A personal loan is unsecured and can be used for almost anything. Someone might get one to consolidate and pay off debt, make home repairs, or pay a medical bill.
Buy now, pay later plans allow people to purchase products now and pay for them over time. It’s often offered on items such as electronics, makeup, and other merchandise above a certain price point. Some popular options include Affirm, PayPal, Klarna, and Afterpay.
Student loans are unsecured and allow people to pay for post-secondary education. Student loans may be federal or private. A key difference with this type is that you don’t have to start paying them back right away, only after graduation.
Mortgages are used to buy homes and are another type of installment loan. They’re usually paid off in around 15 to 30 years, though there are many options.
Finally, auto loans allow someone to buy a new or used car. It’s secured by the car. Repayment terms usually run between two to seven years.
Benefits of Installment Loans
There are many types of loans offered, all with different penalties, repayment terms, and fees. So be sure to compare your options to find the best fit. That said, if you need a fast loan to cover unexpected expenses, it’s often the way to go.
One of the biggest advantages is having a fixed installment payment each month, unlike a credit card. It’s reliable, which makes it easy to budget around.
There’s also the possibility of refinancing later, which can lower your monthly payments and shorten your repayment period.
Need Extra Cash?
Not everyone has enough in their savings to cover the unexpected. Thankfully, it’s fairly easy to take out an installment loan and cover whatever costs you need.
To learn more about loans and other financial matters, be sure to read some of our other content.
