term installment loan has been hijacked by some of the
modern online lenders who charge predatory rates on their loan products.
These use this terminology to urge their possible customers into
thinking that they are getting an old-school loan that
has a reasonably low interest rate with a payment plan over a period
of months, or years.
new-age use of this personal financing term, is not an
actual titled loan product offered by conventional lenders. The
high interest, short-term installment loan became a high yield (and
high-risk) loan product via the online marketing of modern lenders.
Borrowers who are trying to get some relief from a high interest
loan will be looking for a way to make monthly payments with a conventional
lender, but if they are not careful, they can end up paying interest
rates of over 500% APR - as bad, or if not worse than a PDL.
Installment Loans are Retro! - Before there were these
rampant credit schemes in the personal financing industry, installment
loans were the norm.
yesteryears before credit cards, overdrafts, and HELOCs, borrowers
who wanted a loan would apply at the bank for funding approval.
The principal amount, plus all fees, and all interest calculated
by the market-based APR were added up into one lump sum. Then the
lump sum was divided by the months or weeks to be allocated for
repayment. This is a very simplistic way to look it, but this defines
the loan for our purposes here.
Fixed Payments Over Period of Years - principal + interest
+ fees + (maybe amortization) = total owed. Total owed / months
(years / 12) = fixed monthly installment payment, or biweekly
don't need to confuse mortgage payments with installment payments
right now. Most of our readers are interested in applying for a
short-term loan with fixed payments.
Fixed Rate Installment Loan Calculation
give you a better idea of how a simple fixed rate loan is calculated
here is an example for you.
we calculate the above loan, our total is as follows;
to be paid: $40,540.31
Total interest: $10,540.31
Payments: $155.50 every two weeks (biweekly)
each biweekly installment is paid on time
and in full, at $155.50 for 10 full years, the debtor would be clear
and free. This is a conventional loan which will almost always require
some form of collateral - generally not an unsecured loan.