What is Instalment Loans - features, Benefits and How Its work
Instalment loans offer a convenient way to meet financial requirements and repay it in equated monthly instalments (EMIs). These loans serve as versatile financial solutions, enabling you to spread the cost of a big-ticket expense into manageable instalments.
An example of an instalment loan is a Personal Loan. It is often used to finance goals like travel, home repair, or education. Whether you want to make a major purchase or combine multiple debts into a single instalment loan payment, a Personal Loan lets you pay it off in small, manageable amounts. Some lenders offer flexible pay later options for short-term needs.
The following sections will explore the concept of an instalment loan, along with its working, types, pros and cons, etc.
What is an Instalment Loan?
An instalment loan is a type of closed-end credit where you borrow a fixed amount and repay it over a defined tenure through regular, equal EMIs that cover both principal and interest, making budgeting predictable for planned or unplanned expenses.
Since instalment loans are closed-end, the loan that is repaid cannot be used again like revolving credit. Unlike home equity lines of credit, which allow repeated withdrawals, an instalment loan involves scheduled payments and predictable costs.
Some examples of instalment loans include Personal Loans, car loans, home loans, mortgages and auto loans.
How Instalment Loan Works?
An instalment loan allows you to borrow the approved loan amount in a lump sum. You can use the Personal Loan or any other instalment type of loan to cover your intended expense and repay in EMIs over the agreed repayment tenure. While most instalment loans are fixed-rate loans, some lenders also offer variable-rate loans, depending on their terms and policies.
Each EMI contains some portion of both principal and interest on the loan payments. These loan payments are structured so that each monthly instalment contributes towards the loan balance. The lender closes the loan account once you pay the full borrowed amount with interest.
Since instalment credit is predictable, it helps you manage your finances more efficiently. At times, borrowers even choose to repay the loan early, depending on the purpose of the loan and whether any prepayment charges apply.
Types of Instalment Loans
Instalment loans are generally grouped into two categories based on whether collateral is required. Here are the common types of instalment loans you’ll come across:
1. Secured Instalment Loans
Secured loans require collateral such as a car or home, which serve as security for the loan. If you fail to repay the loan, the lender has the legal right to seize your assets to recoup their outstanding balance. Examples include bike loans and loans against property. Mortgages and car loans also fall under secured credit and are among the most common types taken by borrowers.
2. Unsecured Instalment Loans
Unsecured loans do not require any collateral as security. Lending institutions approve them based on the applicant's credit history, income, and repayment capacity. Since these loans are riskier for the lender, they usually come at higher interest rates.
These loans are also popular among those who want quick funding. Such loans may be either short-term or long-term. Unsecured loans are typically offered online. What’s more, instalment loans may involve paperless digital verification to speed up approval.
Read Also- Different Types of Personal Loans in India
What are the Criteria to Get an Instalment Loan?
The eligibility criteria differ for various loan plans and lending institutions. However, your age, income, professional stability, work experience, etc., are the most important parameters that lenders consider. For instance, to get a Personal Loan from Hero FinCorp, you must fulfil the following conditions:
- Age: 21 to 58 years
- Citizenship: Indians only
- Occupation: Salaried or self-employed
- Work Experience: Six months for salaried and two years for self-employed
- Monthly Income: Minimum Rs 15,000 per month
Once you meet these conditions, you can apply for an instalment loan using a fully digital loan application form. Before applying, you can use an online eligibility calculator.
Advantages and Disadvantages of Instalment Loans
Like any credit product, instalment loans also have advantages and disadvantages. The below points highlight the pros and cons of instalment loans, so you can make informed decisions.
| Pros | Cons |
| An ample loan amount covers a large expense with ease | Closed-ended nature prevents them for future usage |
| Quick approval makes them the best funding options for emergencies | May come with a long-term commitment |
| Predictable and regular instalment loan payments | Prepayment penalties for early repayment |
Some borrowers take out an instalment loan due to its predictable payments, while others prefer short-term alternatives.
Read Also- What is an Instant Loan - Why is it Better than Other Loans?
Features and Benefits of Instalment Loan
- Easy loan access with digital application method
- Quick approval for emergency needs
- No need to exhaust savings
- Easy repayment in instalments
- Freedom to choose your instalment size
- The credit score improves with timely repayment
- Helps build positive payment history
How Instalment Loan Affect Your Credit Score?
Let’s see how an instalment loan can affect your credit score.
- Each loan application pulls a hard credit check on your credit report, reducing the score by a few points.
- Timely EMI repayment improves your credit score, while each missed EMI reduces it.
- Paying off an instalment loan or credit card debt using an instalment loan can lower credit utilisation, reducing the effect on your credit score.
- The impact on your credit scores depends on the loan repayment behaviour and your overall profile.
Read Also- How to Get an Instant Personal Loan Without Collateral?
Is it Possible to Get an Instalment Loan with Poor Credit Score?
Although your credit score is a crucial parameter affecting your eligibility, you can still be approved for an instalment loan with a poor credit score. However, you must show a sufficient monthly income to repay the EMIs on time. Alternatively, you can consider adding a co-applicant to the loan application to boost your approval chances. Some instalment loan lenders also offer a new loan to individuals with steady income despite low scores.
Steps to Apply for an Instalment Loan Online with 100% Digital Process
If you prefer a fully digital process, Hero FinCorp offers a simple online application. Here is a stepwise process to apply for an instalment loan online:
- Visit the website or download the loan app
- Go to the Personal Loan page and click 'Apply Now'
- Enter your mobile number and verify with the OTP received
- Choose the loan amount you need
- Verify your KYC details to check income eligibility
- Click 'Submit' to complete your application
Once you accept the loan offer, you will get the loan amount in your account. Use the Personal Loan EMI Calculator or any other online EMI calculator to finalise the right EMI plan.
Read Also: How Personal Loan Deferment Works & How It Can Help You?
Common Uses of Instalment Loans
Instalment loans are popular because they help you manage expenses without straining your monthly budget. Here are some common ways people use them:
- Covering medical bills or emergency expenses
- Funding home repairs, renovations, or upgrades
- Paying for education or skill-building courses (student loan alternative)
- Managing wedding or family event costs
- Consolidating high-interest debt
- Purchasing gadgets, appliances, or essential household items
- Handling travel plans, both domestic and international
Some borrowers also use the Personal Loan for paying credit card debt in instalments.
Instalment Loan Interest Rates & Charges
Instalments loans typically come with attractive interest rates and nominal charges.
Key components include:
- Interest rate, which determines how much you pay above the loan principal
- Processing fees applied at the time of loan approval
- Late payment or EMI bounce charges
- Foreclosure or prepayment fees, if applicable
- GST on fees and service charges
Understanding the loan interest rate and fee structure ensures responsible planning. Using an EMI calculator helps estimate instalments more accurately.
Conclusion
If you are looking for quick funds, you can consider alternatives to instalment loans, such as a Personal Loan from Hero FinCorp. You can get up to Rs 5 lakh for planned or unplanned expenses and repay it over a tenure of up to 36 months. Depending on your eligibility, instalment loans may come with favourable terms and conditions.
Frequently Asked Questions
How do I calculate my monthly instalment (EMI) for a loan?
You can calculate your EMI using an online EMI calculator by entering the loan amount, interest rate, and tenure. It shows the monthly payment instantly.
What documents are required to apply for an instalment loan?
You only need your KYC details to apply for an instalment loan online.
Can I get an instalment loan with no collateral?
Yes, instalment loans like Personal Loan are unsecured. You don’t need to pledge any assets, but approval depends on your credit score, income stability, and repayment capacity.
What happens if I miss an instalment payment?
Missing a payment may lead to late fees, higher interest charges, and a negative impact on your credit score.
How are instalment loans different from revolving credit or credit cards?
An instalment loan has fixed EMIs and a set tenure. Revolving credit lets you borrow repeatedly within a limit and repay flexibly, usually with changing interest costs.
How long does it take to get approved for an instalment loan?
Approval time varies by lender. For example: we offer approves a Personal Loan within 10 minutes, provided you meet the eligibility criteria.
