Also known as a “amortizing loan“, the installment loan is a flexible financing solution that allows you to cover unexpected expenses without having to dip into your personal funds available in a savings account.
The Installment Loan Definition
The installment loan is a form of consumer credit that makes it possible to finance a specific project, such as home improvements, purchasing a car, or a computer.
Obtained without requiring justification, the installment loan is increasingly appealing to consumers looking for cash. Like a guide, this article allows you to learn more about this type of borrowing. Take note!
How Does an Installment Loan Work?
An installment loan is a contract in which a bank or authorized institution provides a certain sum of money to an individual, without the borrower necessarily justifying the use of these funds. It is an amortizing credit that can be obtained for financing the purchase of a service or good, or even for unspecified purposes. This credit is concluded for a defined term, with repayments made in fixed periodic installments. Generally, the borrower makes monthly repayments.
Details matter! The various contracts offered by loan institutions specify elements such as: the amount of periodic installments, repayment period, the cost of the credit, interest rate, and much more. The repayment duration depends on the amount borrowed. For example, at Credafin, this type of loan must be repaid over a minimum of 12 months. It can go up to 120 months for loans starting at €20,000.01. The minimum amount possible to obtain with this financing solution is €2,501.
Analysis of the Installment Loan
Before releasing funds to the applicant, the lending institution conducts a thorough analysis of their fixed monthly expenses and income. If the institution deems that the applicant’s income is sufficient to sustain their living expenses, they grant the requested credit.
Regarding its legal framework, this type of consumer credit is governed by the provisions of Book VII of the Economic Law Code concerning consumer credit. Current legislation specifies maximum repayment periods according to the amount lent, so consumers are fully informed.
The Various Benefits of This Type of Consumer Credit
The absence of a requirement to justify the funds is not the only advantage of an installment loan. It is a form of borrowing that offers numerous benefits. Notably, the monthly payments, interest rate, and repayment period are fixed. This makes it a financing solution free from unwelcome surprises, ensuring security.
With an amortization table provided upon contract signing, it’s possible to get a clear idea of the terms of this loan type. This enables the borrower to efficiently manage their budget. Since repayments must be spread over at least 12 months, the borrower can handle the monthly payments without overly straining their finances.
However, it should be noted that the borrower cannot request changes to the contract terms once signed. In other words, the repayment term, monthly payment, and loan amount are fixed and do not change during the loan’s lifespan. This means the initially obtained funds cannot be increased.
Getting an Installment Loan Suited to Your Profile: Tips
Granted without specifying a destination, installment loans often have higher interest rates. Hence, playing the competition to its fullest is crucial. To do this, you should compare offers from different loan providers before making a decision. During this comparison, pay particular attention to key contract elements such as the repayment period, monthly payments, interest rate, or the amount borrowed. For instance, find the right compromise for the duration based on your income. Remember, the longer the period, the more interest you’ll pay, thus increasing the final cost of your credit. Therefore, the repayment period should neither be too short nor too long.
To get a loan suited to your profile, it’s also important to perform a loan simulation. There is a wide range of easy-to-use simulators online that help you understand the main elements of your installment loan: repayment duration, monthly payment, interest rate, and much more.
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