What is an installment loan?
An installment loan can be described as a kind of loan that’s repaid in regular installments (usually monthly installments), including principal and interest.
How do Installment Loans Function
An installment loan could also be referred to as an installment debt.
An installment loan is given to a borrower who makes an agreed-upon amount of monthly payments equal in amount. These payments are amortized to comprise the principal amount and interest calculated over a specific amount of time.
Let’s say, for example, you obtain the loan amount of $1,000 with an interest rate of 10 percent (or 0.10) APR to be repaid in twelve monthly installments.
$1,000 Plus ($1000*0.10) =
$1000 (principal) + $100 (interest) =
$1100 to be paid in 12 installments
$1100/12 months = $91.66 per month
Based on the calculation the calculations, you’d make 12 monthly payments totaling $91.66 each. The $91.66 is a part of the principal and a part of interest.
When you’ve made 12 fully and timely payments of $91.66, the credit will then be paid, and no additional charges will be required.
What is the significance of Installment Loans?
Installment loans are ideal for both individuals and companies who cannot buy an expensive product or service. They’re a suitable method of paying for buildings or houses, vehicles, or even tuition fees for college in manageable regular installments. The arrangement of the loan provides security to the lender that the loan will be paid back.
In an installment loan, the person’s interest obligations are calculated at a specific amount. If the loan is not paid, then the interest will simply increase, and the borrower is required to pay a more significant total amount to repay the loan.