A personal installment loan is one that is obtained from a bank or other financial institution and paid directly to a person. The loan is then paid back to the bank through regular monthly (installment) payments.
General amounts that are available can be anywhere from $500 to $20,000 (or more). Since the amounts of these loans are so much smaller than a typical mortgage loan, it also means that the length of these loans and the monthly payments on the loan are also both smaller.
The most significant benefit of personal installment loans is that they are typically much easier to obtain approval for than a mortgage loan. This makes them a very attractive option to people who are in need of short term financial assistance.
However, it is important to realize that you shouldn't just jump at the first personal installment loan that you find. There are many important considerations that should be taken into account before you make the decision to get this type of a loan.
The circumstances of your financial situation will play a large role in identifying the right type of loan for you. However, even with these differences, there are five things that should be considered before you reach a decision.
1Secured Personal Installment Loans vs Unsecured
The decision whether to enter into a secured loan or an unsecured loan is the first major decision you must make.
There are several differences between the two types of loans and several of them are listed below.
A secured loan requires some kind of asset to be used as collateral. In this case, if you should default on the loan, the back would then own the asset that was used as collateral for the loan.
Since secured loans don't involve as much risk by the bank, these loans are usually easier to get, have lower interest rates and are available to people who are struggling with credit issues.
An unsecured loan is based upon the bank's faith that you will be able to repay the loan. There is no collateral involved, but you must have a good credit score and income that clearly shows your ability to repay the borrowed funds.
Because the bank has higher risk for unsecured loans, the interest rate and monthly payments are typically higher.
4Interest Rate Comparison
Looking at the interest rate is another important consideration when reviewing possible personal installment loans. Make sure you are comparing “apples to apples” when comparing interest rates. Some banks advertise monthly rates instead of yearly rates.