How Installment Loans Work

Have you ever come across the term "installment loan" but you don't know what it really means? Installment loans are a very popular type of loan. You might even have some of your own.

An installment loan, also commonly called an installment loan, is a line of credit that you pay back over a period of time. Read on to learn more about the different types of installment loans and how they work. Interest may or may not be included.

How does an installment loan work?

With an installment loan, you can receive your borrowed money immediately. You pay in installments, which are regular payments that sometimes include interest. Typically, for each instalment, you owe the same amount over specified weeks, months, or years. After the loan is fully paid off, the account will be completely closed.

Revolving credit accounts such as credit cards offer an alternative to installment payments. Unlike installment loans, revolving credit has no maturity date. If the account is active and in good standing, the account can be accessed and withdrawn again.

Different types of installment loans

Installment loans come in different shapes and sizes, and they can be unsecured or secured. This refers to whether you need assets or "collateral" to repay the loan if you cannot pay it back. Interest rates, payback periods, fees and penalties may vary per loan. Browse whatever you are looking for.

The following are the most common types of installment loans:

Car loan

A car loan can help you buy a new or used car. Your car can be used as collateral for a car loan. The fixed rate and payback period of a car loan is usually between 2 and 7 years.

Mortgage

A mortgage is a loan secured by the property to be purchased. There are different types of mortgage loans. The most common repayment period is 15 to 30 years.

Learn about the many mortgages and credit ratings needed to buy a home.

Student Loans

Student loans, whether private or federal, are unsecured and can make payments easier for graduate, undergraduate, and other types of higher education. Unlike other installment loans, you don't have to start paying off your student loan right away. Instead, you can usually wait until after graduation to start looking for a job.

Personal loan

Unlike auto loans, student loans, or mortgages, personal loans don't have to be used for a specific project. Personal loans can be used for debt consolidation, home or car repairs, or to cover unexpected expenses. Personal loans are usually unsecured.

Buy now, pay later

Some retailers offer options throughout the checkout process. While shopping, you may have noticed "buy now, pay later" loans, often referred to as point-of-sale financing. Instead of paying for the purchase right away, buy now and pay the loan later so you can pay in several installments. The payback period can vary from a few weeks to several years, depending on the merchant and the transaction.