The 4 Types of Installment Loans You Need to Know About
Loans are handy when you need a bit more cash or have to fully finance expenses outside your budget. Finally, you can pay for that car, lot, or investment that will reap you long-term financial rewards!
But did you know that several types of installment loans are available for you to utilize for certain expenses? Each has a different plan and use suited for a particular cost you need to finance. Below are the four types of installment loans you must know about:
Personal Installment Loan (PIL)
Auto loans–also called car financing–lend money to prospective vehicle owners. This works based on car equity, the difference between the vehicle’s value and the loan amount owed.
Your desired automobile costs $5,000.
You only have $2,400.
Car equity = $2,600, which is the debt you need to pay back.
You now have $5,000 equity when you fully pay back the loaned amount. You can use this equity in the future when you need another loan for a new car purchase.
Paying an auto loan is scheduled in fixed installments, currently set at seventy-two months as of 2020. If you can afford to pay more, opt for a shorter period. If not, see if you can extend it to a longer time for smaller installments.
Mortgages are to real estate properties what auto loans are to vehicles. A unique characteristic of a mortgage is it does not operate based on equity.
Excited homeowners seeking a mortgage need to present a down payment equal to a percentage of the total property value. The financial institution then pays the remaining balance, which you will pay back in installments.
Home loans operate on a collateral system, meaning the institution financing your home will foreclose the property when you fail to pay the monthly installments. Since real estate values are higher than vehicles, the repayment period can go from fifteen to thirty years.
Take utmost precaution when considering home installment loans as they require sound financial standing to maintain your mortgage and, most importantly, your house!
Personal Installment Loan (PIL)
PILs are options for those who need emergency expenses for other minor or day-to-day expenses, such as food, utilities, transportation, etc. They are also called short-term personal installment loans (SPILs), as you can pay them back in less than a year.
SPILs could be a good option for you if you need cash fast. You can apply for one online or via storefront lenders, but we advise you to go through online providers if you need a SPIL fast from anywhere with an internet connection.
A tip on repaying SPILs: ensure you can pay it back under a year, so you don’t accrue compounding interest over time. Remember that SPILs are for minor and emergency expenses only. Do not use them where an auto loan, mortgage, or student loan is best suited.
Student loans aid college students to fund their tertiary education without any present financial stress. The federal government partially subsidizes these with interest rates lower compared to other installment loans.
Repayment begins once the student graduates from college or a university or secures employment. Additionally, undergraduates can also apply for part-time work to save up for repayment or lighten school expenses.
Auto loans are for vehicles; mortgages are for real estate; SPILs are for emergency and minor expenses; student loans are for college tuition fees. Bear in mind the four different types of installment loans and what each one is for. The right installment loan will help you budget accordingly and prepare a repayment schedule without hemorrhaging funds.
Need to borrow right now or know someone who desperately needs cash? Tell them to apply for installment loans online through Shelby Finance Company! We’re the best personal loan institution in Memphis, Tennessee, providing services founded on sound, ethical lending practices. Apply now!