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How Installment Loans Work and How They Can Work for You

Updated: Jan 10, 2022

When you need cash for a significant expense or sudden emergency, just exactly how will you make ends meet? You could pull in a few overtime hours at work or take a sideline to boost income, but that would burn the candle on both ends. Good thing financial institutions offer installments loans for added convenience without sacrificing your health.

Keep reading as we’ll tell you how cash loans and direct lender loans work and how they can work for you!

They’re Also Called Installment Loans

Cash loans and direct lender loans are also named installment loans. These financial services are debts that borrowers repay regularly, typically called installments.

For instance, say a borrower needs $16,000 for home renovations. Creditors and lenders will give them the said amount in exchange for an agreement to pay off the total amount in partial remittances per month plus interest (so the lender earns from lending). It could look like this:

$16,000 loan amount payable over one year

$16,000/12 months plus 10 percent interest = $1,467 monthly installment fee

All kinds of loans – whether mortgages (for houses), auto loans (for cars), personal loans, or student loans – are structured this way. Depending on your earning capability, you and the creditor can discuss more flexible terms and interest rates to suit both your needs.

However, longer payment terms usually mean higher interest rates (more income for the lender), while shorter installments lead to lower interest rates (since lenders recoup their finances much faster). So be sure to consider these before securing a loan.

Dangers of cash loans and direct lender loans default on the payment (meaning borrowers can no longer meet the financial obligations) and collateral loss (borrowers lose an asset given to the lender for the loan’s security).

Types of Installment Loans

As mentioned above, there are several types of loans payable through installments:

  • Auto loans: Mainly for purchasing automobiles.

  • Mortgage loans: Mainly for home financing.

  • Student loans: The borrower pays off a college education once they start gainful employment. Along with auto and mortgage installments, these are considered significant long-term loans.

  • Personal loans: Are for emergencies and sudden personal expenses, such as groceries or bill payments. They are considered small, short-term loans.

  • Variable-rate loans: These are installment packages where the interest rate changes over time due to inflation or the prediction of lowered interest rates in the future.

Installment loans can also be secured or unsecured, meaning creditors will require collateral as payment security or not.

Significant loans such as auto and mortgage installments require security, usually the house or car they pay. When borrowers default on the payments, they lose the collateral, meaning the home or vehicle that’s being financed.

Smaller installments such as personal loans and direct lender loans often do not require collateral for financing. However, creditors lend based on the borrower’s creditworthiness, usually referring to their FICO® Score☉. Through their payment history and payment punctuality, these data prove or disprove to the lender that the borrower is good for the money being requested.

The high risk of defaulting in major loans usually means lower interest rates. However, they may balloon if the payment period is much more extended than the industry average (30 years for mortgages and six years for auto loans).

On the flip side, personal loans and direct lender loans are less risky since they don’t require collateral. However, this means higher interest rates compared to their secured counterpart.


Installment loans can make you more financially responsible if you know what you’re getting into. So how can these loan facts work for you? It’s simple: do the math. Figure out which loan you need at the moment and if you can pay for the monthly installment. These tools empower you to purchase what you need right now without saving up for it piece by piece.

But, always ensure it is well within your credit score and financial capability to pay off the loan at the agreed time. Count the cost before jumping right in, as It is painful to lose a home or car in the middle of making payments.

Need affordable direct lender loans or cash loans in Pelham, AL? Contact When Ends Don’t Meet right now! We’re a financial group partnered with 19 different lenders in major metropolitan areas to deliver personalized service for financial loan needs throughout the Southeast. Get financing from us today!

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