The term installment loan often refers to personal loans or cash loans. This kind of loan takes out a certain sum of money and repays it with interest over a set period, usually between 12 and 84 months. After the loan is paid off in full, the account is closed.
Different categories of cash loans
Depending on the borrower’s preference, cash loans are either secured or unsecured.
- Unsecured Loans – Unsecured cash loans do not need any security or collateral. Your credit history will be taken into consideration via lender when determining your eligibility for the loan. Some lending companies provide secured loans as an alternative to unsecured loans to borrowers who either do not meet the requirements for an unsecured loan or want a better interest rate. In the case of unsecured loan, you need to provide your documents like ID proof, income certificate and bank statement. You do not need to mortgage any asset to get an unsecured loan.
Secured Loans – A secured personal loan’s collateral might be a savings or certificate of deposit. If you cannot keep up with your payments, your lender typically has the authority to seize the asset you used as collateral for the loan. In this case, you can use your car, home, property, or business as collateral.
What Lenders Care Most About When Deciding to Give You a Loan
When deciding whether to approve your application, important factors that lenders look at include:
- Compensation and Prior Work Experience
Your work status and monthly or yearly income also play significant roles in the loan approval. Lenders will check your capacity to repay the loan based on your current and projected revenue and the consistency of your employment history. If you’re self-employed, the bank will presume that your firm has been successful over the last few years, and you are capable to repay their loans.
- Effect on Credit Ratings
After receiving a loan application, lenders will pull your credit report. Hard inquiries have a short-term impact on a person’s credit score, often a few points, and a long-term effect of about two years. A number of the financial institutions with whom you have existing accounts will pull your credit report and you must have a good credit score to get a cash loans.
The lender may determine the interest rate that as per your loan depending on the collateral you offer, and the worth it has at present on the market. Lender confidence in the transaction can increase and the interest rate can get lower if the collateral is given. Unsecured cash loans have a bad reputation since the interest rates are much higher than those of secured loans.