An installment loan is any loan that a borrower repays through regular monthly payments, or “installments.” Many common loans are considered installment loans like mortgages, auto loans, student loans, and personal installment loans.
Installment loans are some of the most common types of loans out there. Odds are that if you’ve had a personal loan in the past, you’ve probably had an installment loan. Below are brief explanations of the most common types of installment loans:
Mortgages: A mortgage is a loan for buying a house. They usually last 15 or 30 years, and borrowers make monthly payments to pay off the house. These would be considered “secured loans,” which means that the house you’re paying off acts as collateral for the loan. So if you stop making payments the lender can take the house to recoup their loss.
Auto Loans: These are loans for purchasing a car, truck, SUV, or motorcycle. You can get a loan to buy a vehicle through the dealership, which is common, or from another lender like a bank or credit union. Once you’re approved for the loan and you agree to all of the terms, interest rates, and repayment conditions, you’ll get the vehicle. Then you make regular monthly payments until the vehicle is paid off. These are also secured loans and the lender can take away the vehicle if you stop making payments.
Student Loans: These loans are used for paying for higher education like college or trade school. These are unsecured loans so you can get one without collateral. Once you graduate you’ll begin to repay these loans. They tend to carry low interest rates, but they can be rather large loans due to the cost of school.
Personal Installment Loans: These are unsecured personal loans that many borrowers use to pay for unexpected expenses like car repairs or medical bills. These loans are usually catered to borrowers with lower-than-average credit scores. Personal installment loans are commonly seen as a good alternative to higher-interest loans like payday and title loans.