Table of Contents Hide
- What is Installment Loan?
- How does an installment loan work?
- Advantages of This Type of Consumer Credit
- Tips to Obtaining an Installment Loan That Is Adapted To Your Profile
- What Is the Difference between an Assigned Credit And a Revolving Credit?
- How long will I have to repay my installment loan?
Also known as “depreciable credit ”, the installment loan is a flexible financing solution, which makes it possible to meet unforeseen expenses, without necessarily having to draw on personal funds, available on a savings account. .
What is Installment Loan?
The installment loan is a form of consumer credit through which it is possible to finance a specific project, for example work in a house, the acquisition of a car or a computer.
Obtained without proof, the installment loan is attracting more and more consumers looking for cash. As a guide, this article allows you to learn more about this type of loan. Take note!
How does an installment loan work?
The installment loan is a contract through which a banking establishment or an authorized organization makes a certain amount of money available to any natural person.
Without this borrower necessarily justifying the destination of the funds received. It is a depreciable credit, which can be obtained both to finance the purchase of a service or goods and for an unspecified purpose.
This credit is concluded for a fixed term while repayments are made in fixed periodic installments. As a general rule, the beneficiary of such a loan proceeds by monthly repayments.
Details may exist! The various contracts offered by lending organizations mention certain elements: amount of periodic installments, repayment period, cost of credit, interest rate and many more.
The repayment term depends on the amount borrowed. For example, at Credafin, this type of loan must be repaid over a minimum period of 12 months . This can go up to 120 months from a loan amount of €20,000.00 .
The smallest amount that can be obtained under this financing solution is €2,501.
How Installment loan Works
When you apply for installment credit, before making the funds available to you as the applicant, the lender conducts a thorough analysis of your fixed monthly costs as well as their income. And when the organization considers that your income is sufficient to enable you to live, it grants you the credit requested.
In terms of the legal framework, this type of consumer credit falls under the provisions of Book VII of the Code of Economic Law on consumer credit. The legislation in force specifies the maximum repayment periods according to the amount lent. Consumers who use it therefore know what to expect.
Advantages of This Type of Consumer Credit
The absence of justification of the funds is not the only advantage of the installment loan. It is a form of borrowing that offers many advantages. We can cite in particular the fact that the monthly payments, the interest rate as well as the repayment period are fixed.
It is therefore a financing solution that protects the borrower from unpleasant surprises, in addition to being safe.
Thanks to an amortization table provided when the contract is signed, it is therefore possible to get a precise idea of the terms of this type of commitment. This allows the borrower to optimize the management of his budget.
And since the repayments must be spread over a minimum of 12 months, the beneficiary can therefore support the different monthly payments without compromising his finances too much.
However, it should be noted that it is impossible for the borrower to request a modification of the terms of the contract once it has been signed.
In other words, the repayment period, the monthly payment, the amount borrowed are fixed and do not change during the life of the loan. This means that the funds initially obtained cannot be increased.
Tips to Obtaining an Installment Loan That Is Adapted To Your Profile
Granted without proof of destination, the installment loan is characterized by higher interest rates. It is for this reason that it is important to fully play the card of competition.
To do this, you must compare the offers of several lending organizations before making your choice. During this comparison, particular emphasis is placed on key elements of your contract such as the repayment period, the monthly payments, the interest rate or the amount borrowed.
For the duration, for example, you have to find the right compromise according to your income. Be careful, you must remember, the longer it is, the more interest you will pay and will thus increase the final cost of your credit.
It is therefore necessary that the repayment period is neither too short nor too long.
To obtain a loan adapted to your profile, it is also important to carry out a loan simulation. There is a wide range of easy-to-use simulators on the web to get an idea of the main elements of your installment loan: repayment period, monthly payment, interest rate and many more.
What Is the Difference between an Assigned Credit And a Revolving Credit?
For assigned loans (car loan, consumer loan, motorcycle loan, works loan), a close dependency link is established between the main contract (the purchase), and the loan contract (the loan), provided that this link is expressly mentioned in both contracts.
Consequence: the execution of the loan agreement depends on the execution of the purchase (if you do not proceed with the purchase project, the loan agreement becomes null and void). If, conversely, the organization refuses the loan contract or if you retract, the purchase contract disappears at the same time. If difficulties arise in the execution of the purchase contract (hidden defects for example), you can ask the court to suspend reimbursements.
The affected credit will concern an amount less than 21,500, for the financing of a given good or service. The borrower also benefits from the protection of the Scrivener law.
Meanwhile, revolving credit (also called revolving credit, permanent credit or cash reserve before the adoption of the Lagarde law), is not linked to a specific good or service. These credits are not earmarked for any particular use. You have a sum that you spend as you please.
Note: These loans are granted by credit institutions and banks. You use the sums lent as you wish. This type of credit is not linked to a specific purchase, if the good turns out to be defective or for example is not delivered, you must continue to reimburse it.
Most often, these loans have a duration of 1 year, with tacit renewal. The cash reserve can be associated with a credit card. It is often in fact an open account with overdraft authorization.
It allows you to permanently benefit from a reimbursable sum of money as you wish. It is used and reimbursed according to the expenses you incur.
How long will I have to repay my installment loan?
Installment loans are for a fixed term, which means that you make periodic payments on your loan for a set period of time. If you make all your loan payments on time, you will have paid off your outstanding debt at the end of the fixed term.
Most installment loans have a term of 12 to 120 months. The term can depend on things like the type of loan (unsecured or secured) and the amount borrowed.
For example, a personal loan is usually up for a lower amount and a shorter term, while a Home Equity Loan (a type of secured loan) is often for a higher amount and a shorter term.
Here in Alphawallstreet, we guide you to determine the best term for your installment loan that will help you manage your payments and will suit your unique budget.
Installment loan is a unique type of consumer credit as it provides you with the funds to sort at what you want while not emptying your savings account. It gives you the flexibility of getting a loan for your project while not surpassing your budget as a specific amount is deducted from your account usually your salary account monthly as stated in your loan terms. This way you don’t overthink on how to pay off your loan.