An instalment loan is the most common type of credit that banks and NBFCs offer. Once you borrow a required sum, you need to repay the amount along with interest in affordable instalments within a specific timeline.
You can use the borrowed amount for the following purposes:
- To pay educational expenses
- To clear hospital bills
- To finance a vehicle
- To purchase a property
Read on to know more about this financial tool and its benefits.
Instalment Loan Meaning
Check out some important points about this form of credit:
- The borrowed sum attracts interest, which you must also pay as the equated monthly instalment or EMI
- You can avoid paying the amount as a lump sum
- Pay the borrowed amount for a predetermined period, called a loan term, which may range from a few months to a year
- The lender will close your loan account once you repay the entire outstanding amount
Types of Instalment Loans
Instalment loans are classified into two types:
- You need to pledge your valuable assets as collateral
- In the case of default on repayment, lenders can rightfully sell or auction your pledged assets to recover the loan amount
- Examples of secured loans include gold and home loans
- In this form of credit, there’s no need to pledge collateral
- The borrowing costs may be higher, as there is a risk of default for the lender
- Examples of unsecured loans include personal and student loans
Instalment Loan Example
Some additional examples include:
- Auto Loan: This secured instalment loan allows you to buy a new or used car by pledging the vehicle as collateral, typically for a tenure ranging between 2 and 7 years
- Buy Now, Pay Later Facility: This short-term, unsecured loan makes shopping easy by providing interest-free credit
- Payday Loan: This is a short-term, high-cost, personal loan which helps you meet emergency financial needs
- Student Loan: This is a type of credit that allows you to finance your education and other related expenses
Pros and Cons of Instalment Loans
Here are some benefits of these forms of credit:
- It helps you avoid lump sum payment
- It allows you to manage a monthly budget with a fixed instalment amount
- It enables you to build a good credit score for future loans
- You can decide on a suitable tenure as per your repayment capacity
- Taking an instalment loan online allows you to get instant approval
- Allows you to cover all your major life expenses
While it is a good option, you must also consider its drawbacks, which are as follows.
- For a secured type of loan, your asset is at risk for the chosen tenure
- Some lenders may have stringent approval criteria
- There may be additional charges involved, which can increase your borrowing costs
based on these facts, you can decide whether or not you should opt for an instalment loan. Compare interest rates and other terms before selecting a lender. One such NBFC offering affordable loan terms is Fibe. With our Instant Personal Loan, you can borrow up to ₹5 lakhs hassle-free from the convenience of your home.
You can choose a flexible tenure of up to 36 months and get the loan amount transferred to your account within 10 minutes after approval. This way, you can manage your instalment loan payments effortlessly. Download our Personal Loan App or visit our website to get started!
FAQs on Instalment Loans
How do instalment loans work?
- Say you have applied for instalment loans online and received approval from the lender
- The amount will be credited to your bank account
- You must pay a fixed monthly instalment, including the interest and the principal amount, to the lender across a chosen timeline
- The loan account gets closed once you clear the outstanding
What are the types of instalment loans?
- Secured loans when you pledge your collateral
- Unsecured loans when there’s no need to pledge your assets
What is an example of an instalment loan?
All loans for which you pay EMIs across a fixed timeline are instalment loans. They include:
- Personal loans
- Car loans
- Home loans
- Gold loans
- Education loans
- Payday loans