Installment loan

An installment loan is a type of loan that is characterized by a constant repayment amount and changing loan installments.

definition

With an installment loan, the borrower always pays repayment installments in the same amount over the entire term. For this reason, this type of loan is particularly suitable for people who like to plan.
Due to the constant repayment rate, the monthly burden on an installment loan is initially very high and only decreases over time. The further the repayment proceeds, the lower the interest on the annual repayment amount will be.

Installment loans are often used for construction and real estate financing, but also as private, business or bridging loans.

advantages

  • at the beginning of the term, the remaining debt drops sharply
  • constant repayment plan leads to high planning security
  • the load becomes less with increasing runtime
  • there is no risk that the borrower will no longer be able to pay the burden after a certain period of time due to the loss of tax advantages or government subsidies
  • overall low interest repayments

disadvantage

  • initially high payment obligation
  • mostly longer terms
  • Additional costs if the remaining debt is reduced early

Summary

An installment loan is also known as an amortization loan. It is characterized by the fact that consistently high repayment installments are made over the entire term. This way, the borrower can ideally plan the repayment. The more capital is paid back, the lower the interest.

Anyone wishing to take out an installment loan must have a sufficiently high income. This is the only way to pay the initially high rates.
The payment method of the installment loan can be per month, per quarter or per year.

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