Over the course of their lifetimes, many people will find it necessary to apply for installment credit. Installment credit is credit granted to a borrower that has a fixed number of payments in which the loan must be paid back in. The payments usually occur at regular intervals, usually every month. The payments must be repaid within a certain specified period of time, which is determined during the origination of the loan. The borrower must also pay interest on the principal amount of the loan. Interest is basically a fee for the use of the lender’s money for a specified period of time. The interest is calculated and then added on to each of the borrower’s regular payments.
People may apply for installment credit for many reasons. Some of the most common examples of this type of credit are home mortgages, automobile loans, student loans, and personal loans. The items these loans are used to purchase are considered necessary by many and are often too expensive to pay cash for. Other examples of installment credit include land and home construction loans, boat and RV loans, and vacation loans. Some items that are purchased with the money from installment credit are not essential; however, they are desires that many people wish to fulfill. Most installment credit loans require collateral to be approved. Collateral consists of material items the borrower offers as security for a loan.
People who are granted installment credit by a lender must be sure to always make their monthly payments on time and in full. Late or missed payments can result in additional fees imposed by the lender. They can also result in additional interest being owed by the borrower. If a borrower fails to make his or her monthly payments, the lender can repossess any items listed on the loan as collateral in order to recoup some of the money that was loaned to the borrower.