The installment loan is a loan that is given to the loan applicant by the bank, provided that it is repaid within a specified period with certain interest. The loan in itself is nothing more than a money loan that is given to the loan applicant at the request and review of the documents. When two private individuals borrow money, nothing is usually specified except that the money has to be returned to the friend within a period of time.
Most of the time you give the friend from whom you borrowed the same amount back as you borrowed the money. For example, you borrow 50 USD from your best friend and after a month you give the 50 USD back to your friend.
Bank offers money back
With the banks, however, the whole thing does not work so easily. Banks want to get a little more money back from the loan applicant than they got. This difference that results is called interest. Interest is nothing more than percentages on the total amount that the loan applicant is loaned from the bank. These are contractually regulated and fixed. With the signature you confirm that you agree to the terms and are willing to repay, for example, 1,000 USD that you have borrowed with 5 percent interest (50 USD). With an installment loan, the monthly installments are also contractually regulated.
The loan applicant and the bank sit down and explain that within 24 months, for example, the loan applicant will repay the loan at monthly rates of USD 41.66. Since monthly interest of 5 percent also accrues, the borrower pays USD 43.74 per month for 24 months.
Under what conditions can a loan be taken out?
The conditions for taking out a loan are usually similar at all known banks. The banks almost always want to be sure that the borrowed money will be returned. For this reason, the banks require the borrower to provide proof of salary for the past 3 or 6 months. You should also be employed or at least employed as a student, for example, when you take out a loan.
As a student, you can get a loan, but the loan amount will never be as high as when you are fully employed. The banks especially prefer full-time employees, these loans almost always get a loan from the bank. Furthermore, it is good if you have no negative Credit bureau entries.
Credit bureau entries are looked at by the banks when checking the data of the borrower, and if you have negative Credit bureau entries, the loan is usually rejected. So that you can get a loan, it is good if you are employed full-time or at least a student, works for at least six months and can submit pay slips and have no negative Credit bureau entry. If these prerequisites are met, there is almost nothing standing in the way of the desired loan.
How are interest rates calculated and how is an installment loan composed?
As already mentioned, the interest is a percentage of the loan. The installment loan is a loan that must be paid off within the specified period. For example, you take out a loan of 2,500 USD. The bank rates interest at a rate of 7 percent. You agree with the bank that you want to pay back the money within the 12 months.
The monthly installments, including interest, are calculated as follows. With a loan of 2,500 USD, you pay 222.91 USD within the 12 months including interest. So after 12 months you pay the amount of 2,674.92 USD. The bank makes a profit of USD 174.92 within the 12 months from the interest.
What are the possible pitfalls?
As a borrower, you have to be careful that you pay the monthly installments on time. If you do not do this, for whatever reason, you will usually receive a reminder of 10 USD within the 3 working days after the monthly agreed rates have not been received.
So you are forced to pay 232.91 USD instead of, for example, 222.91 USD per month. If you still fail to make a payment, you will receive the next warning until the loan contract is finally canceled due to failure to meet the contractual conditions and you are forced to repay the full remaining loan amount, for example in the amount of USD 2,500, usually within the 14 working days.
If you do not make a payment, a negative Credit bureau entry is made and you are charged by the bank and come before the court. There the judge will decide how and when to pay the money. You pay the court costs yourself. For this reason, it is advisable to pay the monthly installments in good time to prevent reminders and problems.
What to do in case of bad Credit bureau?
If you have bad Credit bureau information, you can look for banks that provide loans for people with bad Credit bureau. But you should be careful because most of these banks are not reputable. Although these banks issue a loan, interest rates are astronomically high and the terms of the contract are rather questionable. It is therefore advisable to find out carefully on the Internet whether the bank that granted the loans despite the negative Credit bureau is really serious and what experiences the customers have had.