Also known as “depreciable credit “, the installment loan is a flexible financing solution, which allows you to cope with unforeseen expenses, without however being forced to draw on your personal funds, available on a savings account.
An installment loan is a form of consumer credit through which it is possible to finance a specific project, such as work in a house, the acquisition of a car or a computer.
Obtained without proof of use, the installment loan is attracting more and more consumers looking for cash. Like a guide, this article allows you to learn more about this type of borrowing. Take note!
How does an installment loan work?
An installment loan is a contract by which a banking establishment or an authorized body makes a certain amount of money available to any natural person, without this borrower being obliged to justify the destination of the funds received. It is a depreciable credit, which can be obtained both to finance the purchase of a service or property or for an unspecified purpose. This credit is concluded for a fixed term while the repayments are made by fixed periodic payments. Generally, the beneficiary of such loan proceeds by monthly repayments.
Even if special features may exist, the various contracts offered by the lending institutions mention certain elements: the number of periodic installments, repayment duration, cost of credit, interest rate, and many more. The repayment tenure depends on the amount borrowed. For example, at Credafin, this type of loan must be repaid over a period of at least 12 months. This can go up to 120 months from a loan amount of € 20,000.01. The smallest amount that can be obtained under this financing solution is € 2,501.
Before making the funds available to the applicant, the lending institution performs an in-depth analysis of its monthly fixed costs as well as its income. And when the organization considers that the latter’s income is sufficient to allow it to live, it grants it the requested credit.
With regard to the legal framework, this type of consumer credit falls under the provisions of Book VII of the Code of Economic Law on consumer credit. The legislation in force specifies the maximum repayment periods according to the amount loaned. Consumers who use it know what to expect.
The different advantages of this type of consumer credit
The absence of justification of the funds is not the only asset of the installment loan. It is a form of borrowing that offers many advantages. One can quote in particular the fact that the monthly payments, the rate of interest as well as the duration of repayment are fixed. It is therefore a financing solution that protects the borrower from unpleasant surprises, in addition to being secure.
Thanks to an amortization table provided when the contract is signed, it is, therefore, possible to get a precise idea of the terms of this type of commitment. This allows the borrower to optimize the management of his budget. And since the reimbursements must be spread over a minimum of 12 months, the beneficiary can therefore support the different monthly payments without compromising their finances too much.
However, it should be noted that it is impossible for the borrower to request a modification of the terms of the contract once it has been signed. In other words, the repayment period, the monthly payment, the amount borrowed are fixed and do not change during the life of the loan. This means that the funds initially obtained cannot be increased.
Getting an installment loan adapted to your profile:
Granted without proof of destination, the installment loan is characterized by higher interest rates. It is for this reason that it is important to play the competition card fully. To do this, you must compare the offers of several loan agencies before making your choice. During this comparison, special emphasis must be placed on key elements of your contract such as the repayment tenure, the monthly payments, the interest rate or even the amount borrowed. For the duration, for example, you need to find the right compromise based on your income. You must keep in mind that the longer it is, the more interest you will pay and thus increase the final cost of your credit. The repayment period must therefore not be too short or too long.
To obtain a loan adapted to your profile, it is also important to carry out a loan simulation. There is a wide range of easy-to-use simulators on the web to give you an idea of the main elements of your installment loan : repayment period, monthly payment, interest rate and many more.