What are Installment Loans?
Loans exist in all types and sizes. You can find a loan for just about anything. Some of these loans have to be paid back immediately; some of them can be paid through installments. Installments as payments are used for a variety of different types of loans. Some of these loans are for larger purchases; others can be used for smaller purchases.
When looking at installment loans most people are familiar with installment loans such as auto loans or mortgages but many people may not be aware that there are other types of installment loans. Have you ever received a catalog that offers you items with the full purchase price or you can purchase with several easy weekly or monthly payments? These are another type of installment loan.
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Installment loans have several factors that are necessary in order to qualify. The first is that the total amount is established. The second is that a repayment plan is established that has an approximately equal amount for each payment. For example, a loan for 1000 dollars may be broken into ten monthly payments of one hundred dollars each. In some instances, the amount may vary for example on a fixed-rate mortgage the total amount factors in the reduction in principle which may change the overall monthly price since the installment payment includes principal plus interest.
When you look at your credit report, you will notice that there are several different types of accounts. You have a line of credit loans. Credit cards and store cards are generally placed under the line of credit accounts. You have straight accounts such as doctor bills, which can be paid down but are generally due in full. Finally, you have installment loans these are any type of loan, which has a fixed amount and has a set monthly payment.
When your credit report is used one of the things that are looked at is the debt to income ratio. Generally, your income is placed on one side of the ratio, and then your entire debt is used. However, in some cases, a lender may use part of your debt as part of the ratio. For example, lenders may look only at your installment loans and their payments in ratio to your income. Alternatively, they may look only at your credit card debt to income ratio.
Each lender has their own way of factoring what they determine as important when it comes to qualifying for a loan. Installment loans can be a great way to purchase large ticket items such as cars, furniture, homes, boats, and other necessities. However, it is important to keep track of these loans and make sure that you can afford what you take out. Many people fall into a financial rut or end up with difficulties because their debt to income ratio is too high. In some cases, it has to do with high-interest credit cards. In other cases, it has to do with taking out installment loans where the payments are too high when in relation to income.
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