A single-payment loan requires the borrower to repay the entire principal balance and the interest in one lump sum on the due date.
What Is A Single-payment Loan?
Single-payment loans can come in several different forms. Many loans require the borrower to make several monthly payments until their loan is paid in full. However, single-payment loans are paid back with one large payment by the due date decided by the lender. One common form of a single-payment loan is called a payday loan. According to the U.S. Chamber of Commerce, approximately 12 million Americans borrow funds using payday loans each year!1
Loans are a big part of today’s society and understanding them is one key to financial success. Loans are typically issued by financial institutions (such as banks), corporations, and governments. There are many types of loans, so how can you know which one to pick?
There are several types of loans out there. The easiest way to break them down is by “secured” and “unsecured.” A secured loan is one that requires the borrower to offer up collateral in order to take out the loan. This way, if the customer defaults on the loan, the lender can sell the collateral to cover their loss. An unsecured loan is the opposite in that it requires no collateral.
The Basics: Your Credit History
Before we talk more about borrowing money, we need to discuss a topic that is crucial to the whole process. Credit history is one of the crucial ways lenders and creditors assess how responsible you are with your financial obligations. The better your credit history and higher your credit score, the more likely you are to get approved for a loan with the most favorable interest rates, possibly resulting in a lower monthly payment. Before borrowing money, it’s important to know what it means to be fiscally responsible and to understand how credit scoring works.
The 3 Most Standard Types Of Loans
To have a good grasp on the concept of borrowing, it’s important to understand the factors that define different loan types. We will clarify the most common ones:
|
Loan Type |
Description |
|
Secured Loans |
Loans backed by collateral, such as a car or property. If the borrower defaults, the lender can seize the collateral. |
|
Unsecured Loans |
Loans that do not require collateral. Approval is based on the borrower’s creditworthiness, income, and other factors. |
|
Single-Payment Loans |
Loans that are repaid in a single payment, typically on the due date. Common for short-term loans, like payday loans. |
There are a few key features every loan has: the principal, interest, and the repayment term (usually long-term or short-term loans).
The principal is the total sum of money you’re looking to borrow. Interest is essentially the cost of borrowing money. Lenders earn money by collecting interest. The term of the loan is the total length of the loan, in months, that you’ve agreed to.
For example, if Mike wants to buy a new car but doesn’t have enough money for this purchase, he may go to a lender and apply for a loan. Let’s say he wants to borrow $10,000 for his new car. This is the principal. The lender offers him an interest rate and a loan term, by which he has to pay off the debt.
If the interest rate is 5%, and the repayment term is five years, Mike will have to pay more than $10,500 in total by the repayment date. He will do it in monthly payments across the repayment term.
Secured Loans
A secured loan is a loan in which the borrower has to pledge an asset as collateral. That asset is used only if you’re unable to pay back the loan, which is called defaulting on a loan. In case the borrower defaults on their loan, the lender has the legal right of repossession.
Since most people do not have the financial assets to buy a house by themselves, they turn to lenders for help. A mortgage is a secured loan with real-estate as collateral. Another typical example of a secured option is a car loan. If Mike can’t pay his $175 per month as compensation for his loan, the lender might seize his new car. That’s why making your loan payments is important.
Unsecured Options
Unsecured loans often come in the form of credit cards, lines of credit, or a personal loan. They do not require collateral like secured loans. When borrowers miss their monthly payment multiple times, this may have consequences, such as increased interest rates, and decreased credit score. To avoid this, be sure to pay your credit card regularly. Because of the higher risk lenders have to take with unsecured loans, the interest rate may be higher compared to some secured loans.
Single-payment Loans
The name says it all — a single-payment loan requires no partial payments. Furthermore, single-payment loans can act as cash advance loans at times and help you with unexpected financial needs, such as car problems, medical emergencies and similar. Single-payment loans are provided on the condition that the borrower can pay back their total balance by the loan’s due date. If you need money fast and know that you will receive pay soon, you may take out a single-payment loan.
FAQs
The interest on single-payment loans can be higher than on other types of loans, especially if they are unsecured and considered high-risk by the lender.
The main risks include potential debt accumulation due to high interest rates and fees, and the challenge of repaying the entire amount at one time, which can strain finances if not managed properly.
Yes, if you fail to make the payment on time, it can negatively impact your credit score. Timely repayment is crucial to maintain or improve your credit standing.
Yes, alternatives include installment loans, borrowing from friends or family, using a credit card, or exploring lines of credit, which may offer more flexible repayment terms and lower interest rates.
Consider the principal amount, interest rate, any additional fees, your ability to repay the full amount by the due date, and the potential impact on your financial situation and credit score.
Generally, it’s not advisable to use single-payment loans for non-emergency expenses due to their high costs and the risk of financial strain from the single payment requirement.
Single-payment loans, especially those like payday loans, often provide quick access to funds, sometimes within the same day or the next business day after approval.
CreditNinja’s Thoughts on Single-payment Loans
Researching your different loan options can seem overwhelming, which is why CreditNinja has tons of free resources about types of funding, how to find the best lenders, and more! Furthermore, CreditNinja also offers bad credit personal installment loans. Borrowers who work with CreditNinja may enjoy the following benefits:
- Competitive interest rate
- Flexible monthly payment
- Top-notch customer service
- Fast funding*
So, if you’re dealing with a financial emergency and don’t want to deal with high-risk loan options like payday loans or car title loans, check out CreditNinja!
*Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications approved before 10:30 a.m. CT Monday – Friday are generally funded the same business day. Applications approved after this time are generally funded the next business day. Some applications may require additional verification, in which case, the loan if approved, will be funded the business day after such additional verification is completed.
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