Instalment loans offer a convenient way to meet financial requirements and repay it in equated monthly instalments. These loans serve as versatile financial solutions, enabling you to spread the cost of a big-ticket expense into manageable instalments. A Personal Loan is one such loan. Whether you want to make a major purchase or combine multiple debts into a single loan instalment payment, a Personal Loan lets you pay it off in small, manageable amounts.
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 closed-end debt you can borrow to cover any planned or unplanned expense. Afterwards, you can repay it over a set number of months or years, known as the loan term or tenure. Unlike open-ended revolving credit forms like credit cards, you cannot reuse the credit limit as you repay the balance. Different types of instalment loans include Personal Loans, bike loans, mortgage loans, Business Loans, etc.
How Instalment Loan Works?
An instalment loan allows you to borrow the approved loan amount in a lump sum. You can use the loan to cover your intended expense and repay the loan in EMIs set across the repayment tenure. Typically, these loans have fixed interest rates and require monthly EMI payments on a particular date. Each EMI contains some portion of both principal and interest payments. The lender closes the loan account once you pay the full borrowed amount with interest.
Types of Instalment Loans
Now that you know what an instalment loan is, let's look at its different types. It can be of two types, depending on its collateral requirement. Let's discuss them in detail:
1. Secured Instalment Loans
Secured loans require a lien on assets such as a car or home, which serve as collateral 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.
2. Unsecured Instalment Loans
Unsecured loans do not require any collateral as security. Lending institutions like Hero FinCorp 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.
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
Advantages and Disadvantages of Instalment Loans
Like any credit product, instalment loans also have pros and cons. Here are a few points to consider:
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 EMI payments
Prepayment penalties for early repayment
Freedom to choose a repayment schedule according to your EMI affordability
Each loan application pulls a hard inquiry on your credit report, reducing the score by a few points.
Timely EMI repayment improves the credit score, while each missed EMI reduces it.
Paying off revolving debt with an instalment loan can help reduce your credit utilisation ratio on credit cards, which may positively impact your credit score.
Is it Possible to Get an Instalment Loan with Poor Credit Score?
Although your credit score is a crucial parameter affecting your loan eligibility, you can still borrow 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.
Steps to Apply for Hero FinCorp Loan Online with 100% Digital Process
Visit the Hero FinCorp 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.
If you are looking for an instalment loan in India, Use the Hero FinCorp loan app to get a Personal Loan of up to Rs 5 lakh for any planned or unplanned expense without any usage restrictions. Repay the loan in easily affordable instalments over a tenure of up to 36 months.
Frequently Asked Questions (FAQs)
Can I pay off an instalment loan early?
Most lending institutions allow early repayment for instalment loans. However, check the prepayment charges before repaying the loan to ensure they do not exceed your savings with prepayment.
Is instalment debt good or bad?
As discussed above, instalment debt has pros and cons. Consider both when choosing it for your situation.
What are the risks of instalment payments?
Some risks associated with instalment loans include long-term commitment and non-repayment due to job loss or other reasons. Consider your requirements and repayment capacity to decide if you should borrow an instalment loan.
What is the formula for instalment payment?
The mathematical formula to calculate loan instalments is as follows: EMI = P * r * (1 + r)^n / ((1 + r)^n - 1) Here, P = principal loan amount, r: monthly interest rate, and n = loan tenure in months You can also use an online EMI calculator to calculate instalment payments.
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
Katyaini is a finance expert with a focus on the non-banking financial sector, bringing over 8 years of experience in NBFC. She specializes in simplifying complex financial concepts for readers, helping them navigate the NBFC landscape. Outside of work, she is passionate about travelling.
