Which Statement About Installment Loans Is Not True?

When a loan is repaid in equal monthly installments that include principal and interest parts for a certain period, then it is called an installment loan. There are many types of installment loans offered by banks, financial institutes, and independent agencies. However, the interest rate and requirements may differ.

Many reasons make taking an installment loan a better option than using credit cards for meeting urgent requirements. If you live in an urban city with a high cost of living like New York, the cost of taking out the cash advance, monthly payment amounts, interest rate, and loan terms are much more flexible than a credit card.

Personal and Commercial Installment Loans

Which Statement About Installment Loans Is Not True

You can broadly say that there are two types of installment loans – personal and commercial. When credit is given to a person to fulfill his urgent requirements, then it is called a personal loan. When a business takes an advance, it is called a commercial loan.

The installment amount remains the same for each month. However, the portion of the principal amount increases, and the interest decreases in each part with time. The interest rate usually remains fixed throughout the loan term.

Collateralized and Non-Collateralized Installment Loans

Which Statement About Installment Loans Is Not True

Based on the nature of cash advances, it is of two types – collateralized and non-collateralized. All mortgages come under collateralized cash advances, whereas other cash advances are non-collateralized. When the lender keeps your property or asset as mortgage and on behalf of it, they offer you a loan; then, it is called a collateralized loan.

When the loan is given based on the credibility of the borrower and no property or asset has been kept as a mortgage, it is a non-collateralized loan. The personal cash advances are mostly non-collateralized loans.

Which Statement About Installment Loans Is Not True

Installment loans usually require a down payment, and the bank pays the rest. When you request an installment loan to purchase an asset, be it home, vehicle, or any home appliances, you need to spend some percentage of the asset as a down payment amount, and the lender finances the remaining. So, it is true.

To calculate a loan subtract the down payment from the cash price to find the amount financed – If you are buying a car worth USD 10,000, paying 20% (USD 2000) downpayment, then the remaining 80% (USD 8000) is financed by the lender. So, to calculate a loan (i.e., USD 8000 in this example), we need to subtract the down payment (USD 2000) from the cash price (USD 10,000). It is also true.

Installment loans are cash advances on which you pay interest, and the borrower receives the proceeds. In the case of such cash advances, the borrower pays equal monthly installments for the fixed tenure. Each payment consists of a portion of the total debt for that period. So, the borrower pays interest each month. Hence this statement is not false. It is like payday loans where the lender takes fees and interest part at the beginning and disburses the remaining amount.

The borrower pays back the amount in regular, equal installments. This statement is true, as, in the case of loans, the borrower pays some portion of principal amount and interest for that period in equal monthly installments for a fixed period.

Frequently Asked Questions

What Are Some Examples of Installment Loans?

Personal loans, home loans, auto loans, mortgage loans, and business loans are examples of installment loans. They may be different in nature and requirements, but the borrower pays back an installment loan in partial amounts.

How Do You Get Approved for Installment Loans?

Nowadays, it is effortless to apply for a loan and get it approved within a few days. You can visit the bank or financial institute online or in-store and apply for the loan. The lender will verify your documents along with your credit score. If your credentials meet the requirement, then your loan will be sanctioned. To get approved, you need to submit genuine documents, and you need to have a good credit score.

Are Installment Loans Bad?

The answer to the above question is no. The cash advances are better than payday loans and other short term cash advances. The interest rates are lower as compared to pay loans. As the repayment is in small equal monthly installments, the interest charges are never a burden on the borrower’s monthly budget.

What Is an Installment Loan on My Credit Report?

The report on repayment of these cash advances goes to credit bureaus. Any loan that you have taken in the past will reflect in your credit report. If you have received any installment loan and replayed on time, it leaves a positive impact, whereas any defaults negatively affect your credit report.

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