A borrower who is applying for an installment mortgage from a financial institution must first meet with the credit department to discuss terms such as the loan amount and down payment, length, interest rate, purpose, and duration.
Once the borrower is happy with the installment loans process, he/she must complete the formal loan application form. The borrower must give personal information (name and physical address, occupation). Name, address, amount of loan requested, purpose, and collateral provided. If you want a short-term loan or need an urgent loan then a pawn shop is the best option to get Visit What Is Money Quick Pawn Shop Sell?
After the loan application form has been submitted to the bank the lender will begin the loan assessment process to assess whether the borrower can repay the loan. A borrower might be asked to provide additional information like recent financial statements and proof of ownership.
To get details about the borrower’s credit history in the past years, the lender may ask for a borrower’s credit reports. If the lender is satisfied the borrower’s creditworthiness is confirmed, the application can be approved and funds will be disbursed.
If the lender determines that the borrower is high-risk, it may refuse to approve the loan application or give credit with a higher interest rate to compensate.
Types Of Installment Loans
1. Auto Loans
An auto loan, also known as an installment loan, is a loan that is used to purchase a motor car. These loans can be for as long as 12 months or longer, depending on how much the lender is offering.
The lender gives the borrower a sum equal to the vehicle’s cost. The borrower agrees monthly to pay the loan until it is completely paid. The collateral for the loan becomes the vehicle bought with funds. If the borrower defaults upon payments, the collateral will then be repossessed. The collateral will then be sold to recover any owed amount.
A mortgage is a loan that’s used to buy a home. It has maturity periods between 15 years and 30 years. Borrowers are expected to make monthly payments until the loan amount has been fully repaid.
Most mortgages are fixed-interest rates, meaning that future principal and interest payments will be the same. An adjustable-rate mortgage is an option to fixed-interest mortgages. Fixed-interest rate mortgage loans are fixed for the first term. The interest rate then fluctuates in line with market rates.
A personal loan can be used to pay off unexpected expenses like wedding costs or college tuition. The term of a personal loan is between 12 and 60 months. Personal loans generally have a fixed rate of interest and borrowers must make fixed monthly payments throughout the loan period.
Collateralized Vs. Non-Collateralized Installment Loans
An option to collateralize or not collateralize your installment loan is the choice. Collateralized loans require borrowers that they pledge an asset as security for the amount of the loan. The motor vehicle used to purchase an auto loan is used as collateral.
In the same way, a mortgage loan’s collateral is the house purchased using borrowed funds. The mortgage loan holder does not own the property until it is fully paid. The collateral must be appraised at the fair market price before an installment loan is issued to determine its worth about the amount of loan.
The borrower doesn’t have to provide collateral for non-collateralized loans. Instead, the lender extends credit to the borrower based on his creditworthiness and ability to repay the loan. This is determined based both on current cash flows and past credit history.
The lender may request the borrower’s credit file from the credit bureaus to assess the borrower’s creditworthiness. non-collateralized loans are riskier than collateralized loans so lenders charge higher interest rates.