How Are Installment Loans Usually Repaid?

Hey Debt Fighters. As you know there are many different types of debt. One such type of debt comes from installment loans. It seems simple to pay back installment loans, but some consumers are confused with the process. The information here will help you understand your options when making scheduled payments. Before getting into the repayment process, here is a bit of advice on accepting the loan and its terms. Make sure that you are able to make the payments as they are noted in the agreement. Also be sure to read the terms and conditions of the loan carefully for hidden fees.

What is an Installment Loan?

Installment loans are an extension of money based upon your need, income and credit rating. These loans are mainly secured for business purposes, mortgages and car loans. Installment loans are paid in monthly increments including interest over a specific period of time. Some lenders offer multiple repayment plans to better assist their clients with repaying the loan in full.

Frequency of Payments

The repayment terms are broken up into a specific number of payments. The payments are typically on a monthly basis. Some can be broken up into semi-annual payments if the loan amount is not significant. Keep in mind that you will need to set reminders for when your payments are due to prevent the inclusion of late fees or administrative fees that lenders can impose. This causes the next payment to be slightly higher due to the additional fees. Late fees and administrative costs do vary depending on the lender.

Scheduled Automatic Payment

The easiest method of repaying an installment loan is to set-up automatic payments. This will automatically debit your checking account on a specific day each month. This is a convenient option and prevents you from ever missing a payment.

It does become inconvenient, however, when you are faced with a financial crisis and are unable to make the payments. It is ideal to contact the creditor to stop the automatic payments and begin receiving actual statements from this point forward.

Individual Payment with Received Statements

You can opt-out of automatic payments with an installment loan. This will direct the lender to send statements either via email or by regular mail each month. You’ll have a due date on the bill and it will show the payment amount. It is ideal to make this payment ahead of time and pay a little more than the requested amount to help pay down the principal faster.

Methods of payment accepted by most lenders:

eCheck – This method requires you to submit a check number that coincides with your bank account for the loan amount. Once this check number is used, void it out and list it in your ledger as an eCheck payment for the installment loan
Debit card – These cards are attached to your bank account so once the payment is made and is processed, the account will be marked as payment received
Credit card – Although this is not an ideal option, some consumers do pay their installment payments with credit cards to buy more time to pay off the debt
Money order – If you have closed your bank account or do not want the lender having access to your bank account, you can send a money order

These are the most common forms of payment and are widely accepted for nearly all lenders.

Given the options listed above, you should be able to obtain a feasible plan of action for repaying your installment loan. Again, it is important to make these payments on time or early as late payments reflect poorly on your credit rating and accrue interest. Always make sure that you select the best option for your financial needs when setting up the repayment of an installment loan.

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Melanie

Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Through her blog, she chronicled her journey out of $81,000 in student loan debt. She is also the co-founder of the Lola Retreat, which helps bold women face their fears, own their dreams and figure out a plan to be in control of their finances. She is passionate about empowering women, helping others get out of debt, and focuses on the intersection of debt and mental health. Every September she organizes a Suicide Prevention Awareness Blog Tour, to help share resources for those struggling with debt and suicide. In addition to her love of personal finance, art and music, she is also a karaoke master and a cat mom to Miles and Thelonious.

3 comments

Myles Money September 27, 2014 - 6:01 am

What are the typical interest rates on these loans Melanie, and what is the advantage over a traditional loan or an bank overdraft facility which allows you to withdraw cash (up to a certain amount) as you require it?

Melanie September 27, 2014 - 11:31 am

Hey Myles. It depends on where you get the loan from. They can often have higher interest rates, but are easier to obtain for people with not-so-great credit, job history, etc. A traditional loan is preferable if you have good credit, and can wait for it to be processed and disbursed.

Myles Money October 2, 2014 - 10:03 am

Thanks!