How does an installment loan work?

An installment loan is a contract through which a banking establishment or an authorized body makes a certain amount of money available to any natural person, without this borrower being obliged to justify the destination

An installment loan is a contract through which a banking establishment or an authorized body makes a certain amount of money available to any natural person, without this borrower being obliged to justify the destination of the funds received. It is a depreciable credit, which can be obtained both to finance the purchase of a service or a good as for an unspecified purpose. This credit is concluded for a fixed period while the repayments are made by fixed periodic installments. As a rule, the beneficiary of such loan proceeds by monthly repayments.

Even if peculiarities may exist, the various contracts offered by loan organizations mention certain elements: the number of periodic installments, repayment period, cost of credit, interest rate, and many others. The repayment term depends on the amount borrowed. For example, the type of loan must be repaid over a period of at least 12 months. This can be up to 120 months from a loan amount of € 20,000.01. The smallest amount that can be obtained under this financing solution is € 2,501.

Before making the funds available to the applicant, the lending institution does a thorough analysis of their monthly fixed costs as well as income. And when the organization considers that the latter’s income is sufficient to enable him to live, it grants him the requested credit.

As regards the legal framework, this type of consumer credit comes under the provisions of Code of Economic Law relating to consumer credit. The legislation in force specifies the maximum repayment periods depending on the amount loaned. Consumers who use it therefore know what to expect.

The different advantages of this type of consumer credit

The lack of justification of the funds is not the only advantage of the installment loan. It is a form of borrowing that offers many advantages. We can mention in particular the fact that the monthly payments, the interest rate as well as the repayment period are fixed. It is therefore a financing solution that protects the borrower from unpleasant surprises, in addition to being safe.

Thanks to an amortization table provided when the contract is signed, it is, therefore, possible to get a precise idea of ​​the terms of this type of commitment. This allows the borrower to optimize the management of his budget. And since the repayments must be spread over a minimum of 12 months, the beneficiary can therefore support the various monthly payments without compromising his finances too much.

However, it should be noted that the borrower is unable to request a modification of the terms of the contract once it has been signed. In other words, the repayment period, the monthly payment, the amount borrowed is fixed and does not change during the life of the loan. This means that the funds initially obtained cannot be increased.

Obtain an installment loan adapted to your profile: the tips

Granted without proof of destination, the installment loan is characterized by higher interest rates. It is for this reason that it is important to play the competitive card to the full. To do this, you need to compare the offers of several lending agencies before making your choice. During this comparison, particular emphasis must be placed on key elements of your contract such as the repayment period, the monthly payments, the interest rate, or the amount borrowed. For the duration, for example, you have to find the right compromise according to your income. You should keep in mind that the longer it is, the more interest you will pay and thus increase the final cost of your credit. The repayment term must therefore be neither too short nor too long.