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What are Instalment Loans? - Its Types & How it Works
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You're not alone if you've heard the term "Instalment Loan" but aren't entirely sure what it entails. Instalment Loans are a prevalent form of credit, and you might already have one or more in your financial portfolio. In this guide, we'll get into the details of Instalment Loans, exploring what they are and how they function, providing you with a comprehensive understanding of this common credit product.
What is an Instalment Loan?
An Instalment Loan, or instalment credit, is a closed-ended credit account designed to be repaid over a specified period. These loans are versatile, serving various purposes, from general expenses to specific financial objectives such as purchasing a home or funding education.
Unlike open-ended credit accounts like credit cards, where borrowing and repayment can occur indefinitely, Instalment Loans have a predetermined repayment term. This structure provides borrowers with a clear timeline and fixed payment amounts, offering stability and predictability throughout the loan repayment process.
How Instalment Loan Works?
When you opt for an Instalment Loan, you receive the borrowed amount upfront or the item you purchase immediately. This loan is then repaid through regular, predetermined payments called instalments. These instalments typically consist of principal and interest, spread over a fixed period, whether weeks, months, or years. The account is closed permanently once you've repaid the loan in full.
Your credit score can influence the interest rate you're offered for an instalment payment. Those with good credit might secure lower rates, while individuals with average or below-average credit may face higher interest charges. Despite credit standing, Instalment Loans offer financing options to many applicants.
Unlike revolving credit accounts like credit cards, Instalment Loans have a fixed end date. With revolving credit, you can borrow, repay, and borrow again if the account remains open and in good standing. This key difference makes Instalment Loans a structured and predictable option for those seeking financing.
What are the Types of Instalment Loans?
Instalment Loans come in various forms to meet different financial needs and circumstances. Here are some common types:
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Features & Benefits of Instalment Loans
Instalment Loans offer several features and benefits that make them a popular choice for many borrowers:
How Instalment Loans Impact Your Credit Score?
How you manage an Instalment Loan can significantly influence your credit scores. Here's how:
Credit History Consideration
Lenders assess your credit history, including your credit scores, when determining whether to approve your loan application. Your credit scores also play a role in determining the interest rates and terms you're offered for the loan.
Effects on Credit Scores
Is it Possible to Get an Instalment Loan with Bad Credit?
Securing an Instalment Loan with bad credit is possible, although with a higher interest rate than those with better credit scores. Additionally, approval chances are higher for secured loans rather than unsecured ones in such circumstances.
How to Apply for an Instalment Loan?
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