An installment loan is a lump sum of money that you borrow and then pay back in fixed intervals.
If youre wondering what an installment loan is, youve come to the right place.
What Is an Installment Loan?
Installment loans usually have a fixed interest rate that doesnt change throughout the life of the loan.
Some installment loans also charge origination fees to process your utility.
Installment loans work differently than revolving credit, like a credit card.
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Mortgages and vehicle loans are two types of installment loans that are secured.
Examples of unsecured installment loans include student loans, personal loans and debt consolidation loans.
Most mortgages are repaid at fixed interest rates over 15 years or 30 years.
Vehicle Loans
Car loans are also installment loans that are secured loans.
Repayment terms typically range from 24 months to 84 months, with the most common being 72 months.
The standard repayment term for a federal student loan is 10 years.
Federal student loans have a fixed interest rate.
For private student loans, the repayment terms vary by lender.
Privatestudent loan interest ratesmay be fixed or variable.
You borrow a lump sum of money, then pay it off in regular intervals.
APRs range from 6% to 36%, depending on your credit score.
You pay it off at a fixed interest rate over a set schedule.
You typically split the purchase price into four interest-free payments.
The installment payments are billed to your debit card or credit card.
Its typically an unsecured loan that can be used for almost any purpose.
However, they often have lower rates than a credit card.
Also, look at the interest rates of any other debts you have.
Installment loans often have lower interest rates than other types of debt, like credit cards.
Tackling higher-interest debt first is typically a better bet.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
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