What is an installment credit?
Installment credit refers to a loan that is for a set amount of money. The borrower agrees that he will make a fixed number of monthly payments, each at a dollar amount. A repayment term for an installment credit loan could last from months to many years before the loan is fully paid off.
These are the most popular types of installment loans:
- Mortgage loans – You finance the amount borrowed by taking out a mortgage over a specified period of time, usually between 15 and 30 years. After you make all payments, the house is yours.
- Student loans — A student loan allows you to borrow a set amount of money to pay for your education costs. After you have graduated from school, the lender will pay you back over a certain period. A few student loans offer the possibility to defer payments for those who are not employed.
- Auto loans – If you don’t have the cash to buy a vehicle in cash, you will most likely take out an Auto loan. A secured auto loan is one that the finance company has a contract with you to repossess your car if you don’t pay the payments.
- Unsecured loans – Your bank or credit union might lend you money if you have good credit. Payday loan companies charge high interest rates and add fees to people with poor credit.
Are you thinking about getting an installment loan? Here’s how to get the best loan rates.
Installment credit example
Lenders require assurance that you will repay the loan. These are some of the factors they consider when deciding on the risk of lending you money.
- How well you have managed your debts in the past and your credit score.
- How your annual income fits in with your debt-to–income ratio.
- What length of time you have been employed by your current employer, or in your current job.
- If you have additional income sources.
principal and interest
fixed interest rate
loan that is repaid
higher interest rates