Installment loans can be used to your advantage in many ways – building credit, getting a financial boost or getting you through a tough financial situation. Before taking out a loan of any kind, make sure that you are fully prepared to take on the responsibility of paying it back. With an installment loan, you will receive the money in one large sum and you will pay it back in installments (set payments).
There are countless banks, organizations and lenders who offer an installment loan; make sure that you shop around in order to find the lender that will give you the best rates and repayment options that fit your life and budget.
While interviewing various lenders, there are some basic questions that you need to be sure to ask.
Question 1: Will this be a secured loan?
A secured loan is when the borrower puts up some sort of collateral to back the loan amount. Very often the collateral will be a car or a home. If the borrower defaults on the loan, the lender can seize the collateral assets in order to receive part or all of the payment in this manner. It is common for a loan such as a mortgage on a home to be a secured loan. Being aware of all aspects of what would happen if you were unable to pay the loan back is important to understand before borrowing any amount of money.
Question 2: What is my interest rate?
Interest is basically the amount of money you are paying for the money lent to you. Depending on the interest rate, a percentage of your debt amount will be added to the total amount you will repay. Your annual percentage rate (APR), will be determined largely upon your current credit score, your borrowing history and your current employment/income.
The amount of money that you borrow plus your interest rate will help in determining your loan term – how long the life of your loan will be. All of these factors together will make up your monthly (or other agreed upon frequency) payments.
Question 3: Are there any prepayment penalties?
Surprisingly, some lenders will charge you extra money if you pay your loan off faster than your expected loan term. Most people agree that if you are able to pay off your loan faster than expected that it is a good thing but be on the lookout for lenders who oppose this method. Ideally, you will be out of your financial rut sooner than later and you should be permitted to get of debt as quickly as possible.
As you are learning which lender is right for you, additional questions will arise. These few questions to get you started will ultimately help with the overarching education about loans and various lenders. Be sure to choose the lender that will allow you to pay your debt as quickly as you can, that will offer you the best interest rate, loan term and security.
By Boris Dzhingarov who is passionate about writing on different business topics. Follow him on Google+.