All About Personal Loans
Personal loans are designed to help borrowers fulfill personal aspirations and goals. People apply for personal loans for reasons including:
- Covering emergency financial needs
- Going on a vacation
- Marriage expenses
- Discretionary expenses
Personal loans are generally unsecured, meaning you aren’t required to pledge collateral to secure the loan amount. However, because these are unsecured loans, they often come with higher interest rates.
Personal loans are quite different from payday loans for many reasons. Payday loans have an extremely short repayment cycle of a month whereas personal loans can stretch up to 5 years or more. Moreover, personal loans generally feature lower interest rates than payday loans.
If you have a good credit history, you can get a personal loan quite easily. However, approval times are longer than payday loans. Additionally, if you have a bad credit score, your interest rate might be significantly higher.
Since personal loans have attractive payment schedules and interest rates, most people prefer these for medium-term financing over credit cards.
- Versatile for multiple uses
- Monthly payments are constant throughout the loan’s life
- Many lenders offer personal loans, so you can shop for competing offers
- While you need to have a good credit score, excellent credit is not required
- Great option for debt consolidation
What To Know About Mortgages
A mortgage is a specialty type of loan secured by collateral, which in this case is a property. Borrowers are required to pay the required principal and interest within a calculated period of time or risk their home being foreclosed upon by the mortgage lender.
Below are some of the most common forms of mortgages (direct lender or online mortgages) , but there are many types available:
- Fixed Rate Mortgages - The interest rate is fixed and monthly payments are the same over the life of the loan.
- Adjustable Rate Mortgages - The interest rate of this mortgage can fluctuate higher or lower depending on market conditions.
- Jumbo Mortgages – This is a special mortgage type for home prices that exceed conventional loan limits.
- Speciality Mortgages – There are many types of specialized mortgages including Federal Housing Administration and Veterans Affairs loans which are guaranteed by the Federal Government.
When you want to finance a new or used car, an auto loan can help. Auto loans are secured loans because the vehicle is pledged as collateral. If you default on a car loan, your vehicle will be repossessed by the lender.
- Banks usually offer loans up to 90 % of the on-road amount for new cars and 85% if the vehicle is used
- Your car is pledged to the lender as a collateral
- The payment period usually ranges from 12 to 84 months
To finance educational initiatives, some borrowers take on student loans. If financial aid isn’t enough to cover your university expenses, a student loan, whether public or private, could help.
To determine your eligibility for a student loan, you can fill out the FAFSA form. This form is designed to see who qualifies to receive Federal student aid. You can also apply for a private student loan from banks and other financial institutions.
How Installment Loans Work
Every installment loan has certain key characteristics including:
- Payments made at regular intervals
- Fixed payment duration as short as one month or as long as 40 years in some cases
- Principal amount
- Interest amount with an interest rate that can be fixed or variable
Calculate your monthly installment with the following formula:
P is the Principal or loan amount, R is the monthly rate of interest, and N is the number of months.
For example, if you have taken an auto loan of $1000, the monthly rate is 0.001 and N is 36, you can calculate your EMI as’
EMI = [1000 x 0.001 x (1+0.001)^36]/[(1+0.001)^36-1]
If it’s a home loan of $100,000, the formula would be
= [100000 x 0.001 x (1+0.001)^36]/[(1+0.001)^36-1]
What to consider before taking an installment loan
You’ll have a number of considerations to bear in mind when you start looking for your best installment loan and these are going to vary with your circumstances.
- Firstly, how much can you easily afford to borrow? Using a loan calculator will help you work out repayments.
- Do you want one which involves lots of form filling or would an installment loans online option be better for you?
- Might you be able to pay the loan off early? If so, look for the long term investment loans that have lower charges for doing this.
- If your credit history’s not great then maybe long term installment loans with no credit check might be a good option.
- Alternatively, think about getting a co-signer with a better credit history than you.
- Finally, take a look at your credit score. The better it is, the lower the interest rate you could pay.
When Someone Would Go For An Installment Loan
Installment loans are especially useful for covering a specific financial need. However, as with any loan, you’re required to pay the principal and the interest back over a predefined period.
Before applying for a loan, determine the actual amount of money that you need.
Here are some situations where an installment loan is beneficial:
- You’re a salaried employee with a monthly income of $3,000. You want to buy a house worth $150,000, but with your existing salary, this is unobtainable. Accordingly, you can approach a bank for a mortgage loan.
- You want to buy a new car, but don’t have the required cash to buy it outright. In this case, you can apply for an auto loan from an alternative lender.
- If you’re an entrepreneur or a business owner, you may need a loan to finance expansion or cover cash flow deficiencies, and peer-to-peer lending may provide a worthy solution.
- Personal loans help you finance your vacation, marriage expenses, or settling your other outstanding debts. Seek out online lenders to compare rates
- To cover the costs and expenses of an educational degree, check out the FAFSA form and lenders that specialize in private student loans.
How to get an installment loan in 8 steps
Once you’re sure that personal installment loans are the way to go there are eight simple stages to get through. Take each one in turn and, before you know it, the money could well be in your checking account.
- Check your numbers. When you take out an installment loan you’re making quite a commitment so you need to make sure you’ve done the math in advance. Work out your monthly income and outgoings and see just how much cash you have left over for the repayments. This is something the lender is probably going to ask you about, so you best be prepared.
- Check your credit score. Credit scoring is going to dictate the interest rate that you’re going to pay and it will even be used to decide whether you get a loan or not. So it’s a good idea to look into it well in advance. Alternatively, looking for online installment loans with no credit check might be another way to go.
- Check your options. Even though you’re planning to apply for the best installment loans that you can find, maybe there are other options. For example, it might be that you have some savings that you might be better using, especially as interest rates for savings aren’t that great right now and don’t look like they’ll be improving any time soon.
- Choose the type of loan that you’d like. Are you going to go for a fixed rate loan or a variable one? And do you want an online installment loan where everything can be sorted out from the comfort of home or would you prefer to arrange one face to face? Maybe you’d like an installment loan with no credit check – but be aware that the rates may be higher.
- Check out the best rates. Next, it’s time to start looking around for the best rates you can find. Depending on your individual circumstances these can vary greatly so make sure that you find the best ones that are going to mean the lowest possible repayments for you.
- Choose a lender and apply. Once you’ve made your choice it’s time put in your application for the best installment loan that fits all your criteria. You’ll find plenty of help online to assist you in making your choice.
- Provide all the necessary documentation. As well as carrying out a credit check on you the lender may well want documentary proof of income and address like paychecks and utility bills so be prepared to supply them.
- Accept the loan and start the payments. You’re there. Once you’ve accepted the installment loan offer all you need to do is use the money however you want and start to make your payments according to the schedule that you’ve agreed.