Firstly, let us understand the meaning of installment loans. It is a basic agreement or contract involving a loan/ finance that is repaid over time with a set number of scheduled payments. Generally, at least two payments are made towards the loan. The term of the loan may be as little as a few months to in specific years. A mortgage loan, for example, is a type of installment loan.
In a broader sense, online installment loans are part of installment loans. Engaging with Personal Money Network will reform the process of availing installment loans. The transaction changes its color merely because of its procedural aspect (i.e., being online). Let us understand the few aspects and nuances of Online Installment Loan.
Benefits of availing instant online loans
Online installment loans provide loans directly to your money network. The following are the significant benefits of Instant online loans:
- Predictable monthly payments: It is easier to plan the budget as the installment loans have fixed interest rates and no higher monthly payments.
- No collateral: Installment loans are usually collateral-free. As the borrower is not required to submit his assets as security for the loan, they are even free from risk in case of non-payment. Even practically it is not feasible for NBFC to get valid security within a short span of the period (i.e., 24 hours)
- Larger borrowing options: It is easy to borrow a large sum of money for massive purchases like a car, home renovation, or vacation, depending upon your credit score.
- Longer repayment term: installment loans generally fall in the long-term range. Hence, monthly repayments are lower as the loan is spread over the longer-term. For salaried employees, it also depends on their retirement age.
- Easy application process: Loan Granted installment loan is very transparent. An online application form will be provided to the borrower to fill in the details and submit some necessary documents.
- Instant approval & cash: An installment loan is approved in 1 day, or so, the money gets deposited to the borrower’s account instantly.
- Options for all credit ratings: Even with less than perfect credit history, one can apply for an installment loan at Loan Granted.
The downside of installment loans
Any facility which comes with pros has its cons as well. Let us understand it by evaluating each point.
- Easy money is always worthless: It is a human tendency that when a loan is available, people least value the same, ultimately it increases the probability of default.
- Default remedy: As the loans are without collateral, in case of defaults, NBFCs would incur huge losses in terms of defaults, and there is no remedy to recover such amount.
- Rate of Interest: Compared to a home loan, interest rates are higher than those provided by regular financial institutions.
Alternatives for Online installment loans
The online loan facilitator usually checks the credit scores before determining the terms and conditions of the loan. A higher credit score builds higher chances for loan/credit applications to get approved. The rate of interest that would be charged would also be less as the credit score helps you to have a better negotiation. Nonetheless, a low credit score will diminish your eligibility to get an installment loan, and the rate of interest charged would also be higher, and negotiation power would be less. An installment loan is one of the most traditional loan products offered by lenders, which are often lower risk loans than loans without installment payments.
Also, carefully evaluate the terms and conditions that fit your payment cycle, and your payment does not default. Emphasis should be placed on various kinds of fees and penalties they would be charging so that later there is no element of surprise if any fees or penalty is levied. Applicants of loan should ensure that he does not default in payment of installment as this would affect your credit score and lead to an increase in penalty and late fees. It can be easily avoided by paying your installments on time.
Ways to get finance in COVID situation:
Currently, this s an important question on how to get a loan in the COVID situation. Following are the ways in the one can get a loan in these difficult times:
1. Add co-applicant or guarantor: This would undoubtedly increase the lender’s confidence and risk getting divided to that extent. However, while adding a co-applicant and guarantor, make sure he/she has a good credit profile, including stable income, good credit score, and adequate repayment capacity. It would enhance the overall loan eligibility and thereby boost loan approval chances.
2. Choose a longer tenure: Those facing loan approval hurdles can choose a longer tenure, which implies lower EMI outgo. Use an online EMI calculator to choose the ideal tenure whose corresponding EMI and applicable interest rate match your repayment capacity. However, as longer loan tenure translates into higher interest payout, you must either try to make a part prepayment or foreclose the loan whenever you have surplus funds. Ensure that overall interest savings through prepayment should significantly outweigh the prepayment charges if any.
3. Build or improve a good credit score: Credit score is one of the first filters factored in by lenders to assess your creditworthiness. Many lenders have also started factoring in your credit score while setting your loan rates.
4. Reduce your Fixed Obligation to Income Ratio (FOIR) to 40% – 50%: FOIR (Fixed Obligation to Income Ratio) is the proportion of your income currently being used for repayment of mandatory debt obligations such as loan EMIs, insurance premium, SIP contribution, rent, etc. Lenders usually prefer lending to those with FOIR within a 40%-50% mark (including new loan’s EMI). Applicants with higher FOIR are more likely to default, given that a major proportion of their income is already being consumed for mandatory debt repayments.
5. Opt for lower LTV ratio in case of secured loan: Loan to value (LTV) ratio refers to the proportion of the property value sanctioned by the lender in the form of the loan amount. Lenders set this ratio based on their credit risk assessment of the loan applicant. Also, regulators have put compulsory caps on the LTV ratio that can be offered by the lender, such as in case of a home loan, gold loan, and loan against securities. Those requiring or planning to avail a secured loan can boost their loan eligibility by opting for a lower LTV ratio. It would imply lower loan requirements, thereby increasing your loan approval chances.