Installment loans are disbursed upfront only once. However, the repayment has to be done

in installments. So, that’s how it gets its name. The amount you are required to shell out

every month is usually fixed. However, if you have opted for loan with variable rate of

interest, the amount you have to pay every month will also vary. A loan calculator can help

you to assess the repayment amount in this regard.

Aside from the rate of interest, other factors that will decide the monthly payment of the

loan depends on the time period that you have been allotted to return the loan and also the

outstanding balance of the loan that you have availed. As such, installment that you pay

every month deducts not just amount based on the rate of interest but the principal

amount of the loan gets reduced too.

Classical examples of these types of loans include mortgages as well as auto loans. Majority

of the borrowers opt for installment loans online. This is because they do not require

extensive paperwork and the process of loan approval and disbursement is faster too.

Benefits of installment loans

There are several benefits of using installment loans online as well as from storefront.

Some of these are mentioned below:

  • 1. Planning your finances – The most important benefit of a fixed rate of interest

    installment loan is that you are able to assess the amount you have to pay every

    month. As such, you can plan your financial commitments well in advance. In order

    to meet this financial obligation, you can keep aside this amount beforehand so that

    you do not fall behind on payment.

  • 2. Build credit – Another very important benefit of availing these loans is that it helps

    to repair your credit. Experts are of the opinion that for any borrower, a mixed bag

    of different types of debts is important. As such, if you opt for these onetime-

    payment loans and are able to repay the same within the stipulated period of time, it

    is bound to get reflected in your credit report.

  • 3. Helps during unexpected financial crunch – Regardless of whether you are opting

    for installment loans online or from brick and mortar stores, these loans have been

    found to be very useful especially if you are facing an unexpected financial crunch

    and you have not saved for the rainy day. As such, these loans can be compared to

    payday loans. However, just as these loans help you in overcoming the financial

    crunch, they are expensive too. But it will be wrong to draw an absolute comparison

    with the payday loans as these installment loans are debtor friendly most of the

  • 4. Avoid balloon payment – Unlike payday loans that can cause your debts to spiral

    out of hand, installment loans will not cause the same. However, this holds true

    provided you make regular monthly payments. Also, the rate of interest is not high

    as in the case of payday loans.

    Drawbacks of installment loans

Find out if the positive aspects outweigh the negative ones. In this way, it will be easier

for you to decide whether opting for these loans is actually a positive move or not.

  • 1. Hidden expenses – Unless you are able to deal with an honest and reputed

    lender, it will be hard to say whether or not you will get a fair deal. Many debtors

    have complained that when they were first offered the loan, no one explained

    that there were certain hidden charges. There were so called add-on fees,

    flipping of loans, misleading tips and guidelines and fake claims about the

    products. As such, it is of utmost importance that you get hold of these loans

    from reputed lenders, even if that means spending a couple of days hunting for

    the safest lending companies.

  • 2. Rolling over like payday loans – Just like payday loans, these loans can be

    renewed again. And if you rollover the loan once, you can expect the rate of

    interest to be higher than the first time.

  • 3. Getting into a vicious debt cycle – It has been observed that people that are

    badly in need of cash renew the loan again and over the months or during the

    tenure of their loan, are able to pay only the interest part and the principal

    amount does not get reduced. This can be financially very much stressful for the

    debtor over a period of time when he realizes that he has not been able to pay

    back the original amount as yet.