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Tata Capital > Blog > Generic > Installment Loan – What it is & its Features

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Installment Loan – What it is & its Features

Installment Loan – What it is & its Features

An installment loan is a type of borrowing where a borrower receives a fixed amount of money and agrees to repay it in regular, predetermined installments over a set period. Each payment includes both principal and interest, resulting in gradual repayment of the loan until it is fully paid off.

An installment loan can be a good option when you have a well-defined goal, such as purchasing a vehicle, managing education expenses, or covering business expenditures.

With installment loans, you know how much you must pay monthly, allowing you to plan your finances accordingly. Installment loans boost your credit score when you pay the monthly installments on time.

What Are Installment Loans?

In an installment loan, the lender gives you the entire loan amount and allows you to repay it in regular, fixed installments, usually on a monthly basis.

The factors that determine the monthly installments are the principal amount, interest rate, and repayment duration. Once the installment amount is decided, it often stays the same, and you can prepare ahead for the necessary payments.

Types Of Installment Loans

There are various types of installment loan, but the major one includes secured and unsecured loan:

#1. Secured Installment Loan  

This type of installment loan requires collateral as security. The collateral can be any asset worth equal to or close to the loan amount. These can be vehicles, property, or savings accounts.

Lenders often give a lower interest rate because of the collateral involved. If you do not repay the loan at the agreed time, the lender can sell the collateral and recover the outstanding amount.

#2. Unsecured Installment Loan

This type of loan does not require collateral. The lender assesses the borrower's credit score, financial history, and income before granting the loan.

The loan amount is usually less than a secured loan and has higher interest rates.

Examples Of Secured And Unsecured Installment Loans

Some examples of secured and unsecured installment loans include:

#a. Personal Loan

Personal installment loans can be used for various reasons, including debt consolidation, special event funding, medical bill payments, and home improvements.

You can get a personal installment loan from non-banking financial companies (NBFCs), credit unions, and banks.

Unsecured personal loans are generally more prevalent than secured loans.

#b. Home Loan

A home loan is an example of a secured installment loan. The home you purchase often serves as collateral, which helps to lower the interest rate.

However, if you do not repay the loan, the lender can claim the property through a legal process.

#c. Vehicle Loan

vehicle loan is a loan specially obtained to buy a vehicle. The lender provides you with the funds needed to purchase a vehicle, and that vehicle serves as collateral.

The lender offers you a lower interest rate, and if you cannot pay at the due time, they gain the legal rights to own the vehicle purchased.

#d. Student Loan

This loan is offered to help students finance their higher education. It can be obtained from various financial institutions.

The terms and conditions, including the interest rate and the qualification requirements, differ based on the lender. Therefore, it is essential that you find the lender with the best installment loans before applying.

Parting Words

An installment loan can be a great option if you want a lump sum amount with a fixed repayment structure. Tata Capital offers attractive installment loans ranging from personal to home loans at competitive rates. You can apply for installment loans online through the Tata Capital website and get the necessary funds.

FAQs

#1. How can I apply for an installment loan? 

To apply for an installment loan, research lenders and loan types, gather necessary documents (ID, income proof), and check your credit score. Complete the lender's application, providing accurate information. The lender assesses your eligibility, reviews your creditworthiness, and determines loan terms. If approved, you receive funds and start repaying in installments.

#2. What is another name for installment loans?  

Another name for an installment loan is a term loan, where borrowers receive a fixed amount and repay it in scheduled installments over a predetermined period.

#3. What is an installment credit loan?

An installment credit loan is a loan where an individual obtains a fixed amount of money from the lender. The individual can pay back with interest in regular installments over a predetermined period. Example of installment credit loan includes personal installment loans and auto loans.

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