What Is A Fixed-Rate Installment Loans
- Kul Deep
- Last updated on July 17, 2024
A fixed-rate installment loan means a loan in which you get a fixed amount after applying and you have to repay that amount in the form of monthly repayments with fixed interest for a fixed period. The interest rate on installment loans remains fixed, which is why these loans are called fixed-rate installment loans.
As we know fixed rate installment loans are the other name of installment loans. These loans are reliable and known for their fixed interest rates, as the interest rate does not fluctuate and offers stability. So the borrower can manage his budget very easily as he knows when to pay the repayment and how much it is.
In Texas, as in many other states of the United States, installment loans have been becoming popular and people have the option to apply for them online. It is also very convenient that when anyone searches for installment loans in Texas online, he can access various lenders online, compare interest rates, and choose the one that suits his financial needs.
While researching installment loans, a borrower should be aware of the reputable lenders and choose one that is genuine and appropriate. To learn more about installment loans, you can read our detailed guide on it. So here are some features of fixed-rate installment loans that are written below:
Fixed Interest Rate
In fixed installment loans, it is determined at the outset how much interest will be charged and how the loan payments will be calculated. Calculating the interest and payments of the loan in advance gives the borrower the freedom to prepare the loan payment in advance and not face any problem in meeting the fixed date of the month.
Fixed Repayments
At the time of applying for the loan and before taking the loan payment, how many repayments you will pay the loan with interest is also cleared by the lender in advance. All this makes it easy for the borrower to plan the repayments.
Fixed Loan Terms
After approval of the loan, the lender determined the loan terms with your suggestion. The loan terms might be for two, five, eight, or more years. The loan term means how many years you take to complete the loan. In these years, you not only pay your principal amount but also pay interest that your lender predetermines.
Security Or Collateral
Among the installment loans, there are two types of loans, secured and unsecured. If your loan is of secured type, the lender will ask for a guarantee, such as a property or a car while giving you the loan, so that in case of non-payment of the loan, the lender or the bank will seize the guarantee or property and the lender will fulfill its loan, if your loan is unsecured, no collateral will be required and the lender will grant the loan after checking your income and job stability.
Can I Get A Variable-Rate Installment Loan
Yes, you can get a variable-rate installment loan the way you can get a fixed installment loan. However, there is a great difference between a variable installment loan and a fixed-rate installment loan. Variable installment loans where the interest rate always changes even though you borrowed it for a fixed time. This means its interest rate keeps changing and its interest rate is attached to the benchmark link and it is normal for its interest rate to go up or down because of this. In contrast, as the name suggests, the interest rate of fixed-rate installment loans remains the same from start to finish. Undoubtedly, variable-rate installment loans have some pros and cons that are written below:
PROS
- The initial interest rate of variable installment loans is very low due to which the monthly payment of the loan is much less compared to the monthly payment of fixed installments and it is easier for the borrower to repay it.
- Because as the name suggests its interest rate keeps changing due to its attachment to the benchmark link. If the interest rate in the benchmark index falls, the borrower also gets the benefit and his monthly payment comes down.
- Luck also works in it sometimes. If the interest rate in the benchmark index continues to decline by an average, the borrower is likely to pay a reduced interest rate over a fixed time.
Cons
- The biggest disadvantage of this loan is that there is a lot of uncertainty for the borrower. Because the interest rate keeps changing and he doesn’t know how much his monthly payment will be or how much the interest rate will affect his repayment.
- Due to the uncertainty of the interest rate, there is a problem in the preparation of the monthly budget because it is not known how much repayment will have to be made.
- Sometimes the borrower has to pay higher repayments for the whole period due to constant high interest rates in the benchmark index.
Describe Secured Installment Loans
Secured installment loans are loans for which the borrower has to guarantee his asset or property to the lender. In this, if the borrower fails to make his loan payments, the lender seizes his collateral property and sells the borrower’s property to recover the outstanding amount along with interest. Collateral serves as a guarantee to the lender because it allows him to approve the loan to the borrower without any stress. Here are some features of secured installment loans that you should read.
Lower Interest Rate
The interest rate charged on secured installment loans is much lower while the interest rate on unsecured loans is much higher because the collateral in secured loans reduces the interest rate significantly, and in case the lender defaults on the loan payment, the lender can confiscate the borrower’s property.
Loan Amount
One of the features of secured installment loans is that you can have different loan limits from $100 to any amount as the loan amount depends on your collateral. The higher the value of your property, the higher the loan amount. In this way, these loans also fulfill your need for more money.
Credit Score
Secured installment loans have a similar effect on credit score and history. As the lender takes the borrower’s property as collateral, he relieves himself of the worry, and if the borrower fails to make the loan payments, his credit score is negatively affected and if he succeeds, he can increase his credit score.
How Do Unsecured Installment Loans Differ
Unsecured installment loans do not require collateral, meaning the lender does not require any form of guarantee from the borrower to get this type of loan approved. But in this loan, the lender gives the loan only after accepting the creditworthiness and job stability of the borrower. Of course, credit score is important, but many online lenders also provide loans for bad credit scores. So, here are some key features of unsecured installment loans.
No Collateral Or Guarantee is Required
In these types of loans, no collateral is required and the lender or bank gives the loan to the borrower only based on his creditworthiness and job stability. The borrower only needs to provide proof of his regular job and income to the lender. The lender approves the loan based on these proofs.
High-Interest Rate
Compared to secured installment loans, the interest rate of these loans can be quite high. The reason for this is that the lender does not ask for any collateral and provides the loan only based on creditworthiness and regular income. Another reason for this could be that the lender has no security to recover the loan and only covers his payment in case of non-payment with a higher interest rate.
Impact On Credit Score
In unsecured loans, the borrower gets loans based on regular income, job stability, and credit score. If the borrower is unable to make the loan payments, the lender takes legal action, which has a high chance of negatively affecting the borrower’s credit score. And the possibility of getting a loan next time also becomes very dim. Thus, if one thinks of taking an unsecured loan, he should also think of maintaining his credit score.
Loan Amount
In unsecured loans, the loan amount is determined by the lender, while in secured loans, the loan amount is based on the value of the borrower’s collateral property. This means that in secured installment loans, the loan amount can be of any extent. Whereas in unsecured loans, the loan amount is determined only by considering the source of income, and only as much loan is available as the lender determines.
Personal Loan Type
Unsecured loans sometimes take the form of personal loans, because personal loans can be used to handle different types of financial problems, so in the unsecured loans. These unsecured installment loans also can be used for home improvement, medical expenses, or auto repair.
Frequently Asked Questions
What is the benefit of fixed-rate installment loans?
Most people prefer fixed-rate installment loans because they offer fixed interest rates and remain constant for the life of a loan. It benefits the borrower even when the interest rate increases but when the interest rate decreases, the lender benefits.
What are the different types of fixed-rate installment loans?
Fixed-rate installment loans can include fixed-rate mortgage loans, auto loans, student loans, personal loans, home equity loans, and business loans. For all these types of fixed-rate loans, the interest rate remains the same until the loan amount clears.
What is a fixed rate of interest EMI?
The fixed rate of interest EMI is where the interest rate of the principal loan amount remains consistent and is decided at the start of the tenure. It does not change during the decreasing or increasing the interest rate.
Conclusion:
Fixed-rate installment loans are often available at a fixed interest rate. You are given a fixed time to repay these loans and it has to be paid in between monthly payments. Apart from this, there are variable installment loans, in which the interest rate keeps fluctuating but the overall interest rate is sometimes very low. In this way, both secured and unsecured loans have their advantages and disadvantages, but one should also get good information about them before applying.
