Installment loans basics

What Are The Fundamentals Of Installment Loans?

More often than not, people are caught financially strained during a financial crisis. It is not uncommon to wake up to exorbitant bills, income taxes or unexpected medical bills.Your first instinct may be to seek financial aid from lending institutions, which may turn out to be a good option.

The money lending process could be fraught with pitfalls and you to be informed to make a sound decision. There are many traditional forms of lending which you can seriously consider and choose the one that meets your needs. You should also check the repayment period of the loan, how flexible it can be, all costs involved, its interest rate to make sure that you approach a trusted lending website or store.

Most installment loans have fixed interest rate

Most installment loans have fixed interest rate

Most people often choose installment loans. Installment loans online include any type of loan that is required to be paid back over time with scheduled repayments or a series of installments rather than in lump sum. This staggered payment is an advantage for individuals who cannot afford to pay back the loan in one whole lump sum. Installment loans may take the form of auto loans, personal loans or even mortgage loans. There are differences between payday and installment loans and depending on the length of time you want to borrow for you should know the difference.

Most installment loans have a fixed interest rate. This means the interest charged over the term of the loan does not change and remains the same as it was at the time of borrowing. Due to the fixed repayment amount, it is easy for the borrower to sort out his finances to make repayments  promptly.

Installment loans are either secured or unsecured. Secured loans are those that have collateral attached to them. In the event that the borrower defaults payment, the lender has the right to sell the collateral to to recover the outstanding amount. Secured installment loans include mortgage loans and auto loans. When requesting for an auto loan, your car is used as collateral while for mortgage loans, you put down your house as security. There is another type of loan where you can actually use your car as collateral, these are called title loans and you can check out our section on these if you want to drive your car and have a loan.

Unsecured loans do not have collateral attached to them. Such loans are determined by the borrower’s credit score and proof of income. If the borrower has a bad credit score, then chances of securing a loan are small. Consequently, unsecured loans always come with higher interest rates compared to secured loans. This is because the lender faces the risk of non-repayment from the borrower. Personal loans are one example of unsecured loans.

simple & fast process

simple & fast process

Most people like to apply for Installment loans as they have a simple and fast approval process. Applying for an installment loan is quite easy. The borrower fills out an application with the lender. The lender then takes the borrower through the terms of the loan, repayment schedule and the payment amounts.

The lender then advises the borrower to make higher down payments and take out a loan for a longer term to enjoy lower interest rates and lower monthly repayments. For the borrower to qualify for the loan, the lender reviews his creditworthiness to determine the amount of credit to extend. In addition to interest charges, borrowers are expected to pay other fees such as application fees, processing fees, loan origination fees and potential extra fees such as late payment fees.

Nowadays, borrowers can also apply for installment loans online. Online installment loans are quite easy to qualify for. You must have a checking or savings account that has been open for at least one month. This is because online installment loans are transferred directly into your savings account. Secondly, you must be at least age of 18 years to be eligible for an installment loan. Thirdly, you must have a steady and regular income as this guarantees that you are in a position to make repayments promptly.

Lastly, when applying for an installment loan online, you must provide a valid Social Security Number or Individual Taxpayer Identification Number.

Installment loans and bad credit

Installment loans & bad credit

Installment loans & bad credit

Most people have a messed up financial past which adversely affects their credit score which makes convincing a lender to lend them money quite hard. Installment loans save you from this hassle as it approves payday installment loans online for borrowers with bad credit and even those with no credit. Installment loans can be used to repair credit for people with installment loans for bad credit as they create a history of prompt repayments over time.

Merits and demerits of installment loans

Installment loans are an option for many due to the benefits they bring. They are fast and are obtained at substantially low interest rates than other forms of lending such as payday loans. Installment loans are flexible especially when they are long-term as they are tailored best to match the borrower’s ability to repay the loan.

Despite the merits, the borrower is at risk of losing his property in the event that he defaults payment. In this case, his credit score is also likely to get hurt. If you want to keep reading check out this 10 Things you need to know about installment loans

How do car title loans work?

You know that time you have a mortgage loan that is due, maybe you have your kid’s school fees that need to be settled or basically any other kind of emergency that needs settling but you are broke. It gets to the point that you need to look at borrowing alternatives for a way out. There are many types of loans these days.

You could get a traditional loan, but it poses a challenge. As much as you want to get a bank loan, you realize that it’s really hard if you have a bad credit score. Thus, you have to look for other borrowing alternatives. One of them is a online car title loan which is also known as an auto title loan. This article will tell you how it works.

  • Car title loan application
Car title loans are easy to apply

Car title loans are easy to apply

Car title loans or auto title loans are small loan amounts that you can get if you use your car as the collateral. Typically, they are referred to as secure loans because if the borrower is unable to repay the loan, the car will be sold so that the lender can recover his money. They are short loans with loan tenures typically from 30 days to maybe a couple of years.

It is very easy to apply for a car title loan. The first thing you do is apply with the lending company of your choice, assuming that you have done your homework and know which company is able to help you.

There are two ways of application – physical application and online application. You may apply by dropping off the application form at the lending company’s office or online. You are a required to have a couple of documents for making the application process to be simple and easy. They include your name, age, home address, proof of work and other details.

For online application, you are required to visit the website of your lending company. Fill out your details according to the online form and then submit it.

Whether you do a physical application or an online one, the documents which you will need to include the car title and its photo identification. The company will also need to see the car that you are using as collateral to verify its condition and market value to determine the maximum amount of money you could get a loan. The company will also ask for a copy of the car keys and also ask you to buy a roadside plan.

The loan is then processed. If you qualify for the car title loan, the company will then write you a check or directly deposit the loan amount into your bank account.

  • Cost of a car title loan

The cost of the loan varies. Basically, the loan can be between 35%-45% of the market value of the car. Thus, it’s all about what kind of car you have used as collateral. The loan is for about 30 days. However, depending on your contract, you could have a longer period for repayment.

When applying, you are required to first pay up all the processing fees and then after 30 days, you start paying your interest and other fees that may be added on top of the car title loan.

  • Interest rates
Interest rates on car title loans

Interest rates on car title loans

The interest rates on car title loans are some of the highest compared to other kinds of loans. The loans are typically small, ranging from $150- $1500, but they could also go up to $5000. It all depends on your car.

Looking at the annual percentage rates (APR) of the loan, you will realize that it’s one of the highest among all loans. Typically, traditional loans have about 7% APR while APRs of credit card loans are around 20%. The APR for a car title loan is about 300%. This means that you will need to pay up to 300% of the amount of money you actually borrowed.

Mathematically, an APR of 300% translates to about 25% interest rates per month. It should also be noted that this is the basic number, which is averagely given as a statistic. In a real sense, the interest rates are customized according to the agreement between the borrower and lender. Thus, there is a sense of flexibility in car title loans.

  • Repayment

There are 3 main ways of repayment: physical, online payment and withdrawal from the borrower’s deposit account.

  • Physical repayment

This means that the borrower makes his way to the lending company and makes a repayment himself. This is a common and convenient method, especially if you live close to the company.

  • Online repayment

This mode of repayment is easy, convenient and flexible. This lets you make online repayments on your phone from anywhere.

  • Deposit accounts withdrawal
Deposit accounts withdrawal

Deposit accounts withdrawal

This method is usually used by people who have a large sum of money to be repaid each month. This involves the lending company withdraws a certain amount of money from your deposit account. This is done with your approval and your bank. According to most state legislations, the lending company is not allowed to make more than two withdrawals consecutively.

  • Rollover

Rollovers happen when you are unable to repay the loan back on time. A rollover lets you extend the repayment period by 30 days. This, however, comes at a price. You will have to pay a penalty fee and a couple of other fees for processing the loan rollover. The lender may also decide to review the loan’s interest rates at this point and may increase them.

Rollovers have a flip side. This means you will have to pay a lot more. This may be challenging since you resorted to borrowing due to a difficult financial situation in the first place. This leads a debt trap should you roll over again and again.

  • Repossession of car
Repossession of car

Repossession of car

Remember when applying for the loan, the lending company asks for an extra set of your car and a roadside plan? Typically the lender decides to repossess your car because you are unable to repay the loan. The repossession process, however, doesn’t start immediately. The lender will give you a couple of payment options and several ways out before eventually deciding to take a repossession action.

During repossession, the lender will sell your car to recover his money. At this point, you lose your automobile. The excess money left after debt settlement could be given back to you or the lender could decide to keep all of it. Essentially, this depends on where you are from and the state legislation.

If you are able to make prompt repayments on your car title loan, you will get to keep your car.

How will you repay the principle one day?

Taking a loan may be an easy and fast process. However, if you fail to plan how you will repay it, you are going to have a hard time. Financial planning and management goes a long way in ensuring that you have a good financial position and that you are able to clear debts in the shortest time possible.

An endowment mortgage is defined as a loan arrangement in which the borrower pays interest only to the lender while the installments of the principal are paid into a life insurance policy. The maturity date of the policy is similar to that of the mortgage. These plans are usually run for a period of 10 to 25 years.

An example of this is when a borrower has an interest only mortgage valued at $200,000 for 15 years, they are expected to pay the interest on the amount borrowed each month. The full amount of the principle, which is $200,000, is expected to be paid at the end of the term of the mortgage.

  • Paying off the loan as soon as it matures

Repay the principle as soon as it matures

Repay the principle as soon as it matures

The main aim is repaying the principle. And it is not simply paying it off, but doing so within the soonest and the shortest period of time possible. Therefore, a lot of sacrifice and discipline will be required so as to meet this goal. Note that the value of the principle will decrease over a period of time. This is due to inflation.

As a borrower, you should make arrangements on how you will save up the money so as to pay off the loan when it matures. The lender plays no role in making loan repayment programs. You may pay off the principal in the following ways:

  • Frequent savings

You may have a standing order placed on your account so as to instill a sense of saving discipline. You may direct your banker to send money frequently from your checking account to a savings account. The amount of money that you pay towards your loan may be increased. This is possible if you have some disposable income after settling your monthly expenses.

  • Extra cash flow

If you happen to receive an annual bonus or an income tax refund, this extra source of income can be used to cover the loan repayment.

  • Investing in income generating business

Proper use of your money involves investing it in high return ventures. These profits will give you an extra source of income and such cash flow will enable you to have more ability to pay off the principle.

  • Inheritance and gifts

Inheritance & gifts

Inheritance & gifts

If you are lucky enough to receive gifts or inheritance, you will be able to use this to pay off the principal.

Proper planning ensures that you will be able to pay off your loan when it matures. With this, you will avoid less attractive options such as extending the mortgage term, remortgaging or downsizing.

As the loan repayment is an expense that you are aware of, good planning ensures that you will not be overwhelmed when the payment is due. As windfall payments such as inheritances or bonuses are not a sure thing, your efforts during the mortgage will go a long way in securing your finances, and even your home and other assets, when the mortgage is due.