The installment loan
The term installment loan means a short or medium- term loan, in which the bank or a financial institution provides a sum of money to the requesting customer, who undertakes to return it according to an amortization plan with installments repaid with expiration dates. agreed, which include the loaned capital and interest, which are calculated in different ways with an indexed fixed or variable rate.
What are the risks of the loan in installments?
The main risk is due to the costs that the installment loans entail ( interest rates, commissions and ancillary expenses) which can vary and also increase unexpectedly according to the conditions and clauses provided by the contract.
In the case of a loan with installments with a fixed interest rate, the rate remains fixed for the entire duration of the loan. The disadvantage is that it cannot take advantage of any rate cuts on the financial market. The fixed rate is recommended for those who want to be sure of the amounts of the individual installments, and of the total cost to be repaid.
In the case of an installment loan with an indexed variable interest rate, the rate may vary, according to the methods and times established by the contract, according to the performance of indexation parameters such as Euribor. The obvious risk is that, during the repayment period, there is a sharp unexpected increase in the amount and number of installments to be repaid.
The variable rate loan is advisable for those who want to take advantage of a rate that is always in line with market trends, because they are able to sustain any increases in the amount of the installments.
When to apply for a loan in installments?
An installment loan can be requested for infinite purposes and purposes both by private individuals and by companies.
As for private customers, they usually request a loan for personal reasons or to buy expensive products, cars, furniture, home renovations, medical treatments, etc. which normally could not pay in cash but who can instead afford to pay deferred in installments.
As far as companies are concerned, these are aimed at credit institutions mainly for liquidity needs or for medium to long-term investments.
Repayment of the loan in installments
The customer repays the loan with the periodic payment of installments including principal and interest, at a rate that can be fixed or that varies according to the methods and times specified in the contract.
The installments can be repaid with different payment methods: bank transfer, postal payment slips or directly in cash at the bank or lender’s counter.
Early repayment of the loan in installments
The customer has the right to early repay the loan, repaying the residual capital in a single installment, and the cost of a penalty equal to 1% of the capital repaid in advance. Complete extinction entails the termination of the contractual relationship with the return of the capital due before the loan expires.