Installment Loans

Installment loans: updated

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The 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.

The 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.

True Installment Loans are Retro! - Before there were these rampant credit schemes in the personal financing industry, installment loans were the norm.

In 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 payment.

We 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.

Basic Fixed Rate Installment Loan Calculation

To give you a better idea of how a simple fixed rate loan is calculated here is an example for you.

  • Principal = $30,000 in high interest debt
  • 7% interest rate
  • over 10 years
  • biweekly payments

When we calculate the above loan, our total is as follows;

Total to be paid: $40,540.31
Total interest: $10,540.31
Payments: $155.50 every two weeks (biweekly)

Assuming 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.

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