Definition of Installment Credit
Installment credit is a type of credit repayment loan plan that comes with a fixed amount and payment period. You have to pay back the principal along with the interest in equal amounts over the set time.
How does Installment Credit Work?
Installment credit works as a term loan that has to be repaid as monthly installments. Each monthly payment is calculated on the basis of the principal and interest and has to be repaid within a fixed number of months.
How to Obtain Installment Credit?
You can get installment credit for your business from any bank or financial institution. If you have a good personal credit score and an asset that can be used as collateral you can get the credit. Or else, you can get additional security from a co-signer.
The Advantages and Disadvantages of Installment Credit
Installment loans come with several advantages which make them very popular with small businesses. The fixed interest rate makes the monthly payments fixed which is known to the borrowers before taking the loan and hence they can make arrangements to repay the loan on time.
Installment credit is generally long-term loan and hence attracts low interest rates.
However, there are a few disadvantages of installment credit like in a volatile market, when market interest rate drops, the borrowers have to pay the higher fixed interest rates.
The conditions of the loan are fixed at the time of taking the loan and if the borrowers face any negative situation, they may face default also.
How Installment Credit Affects My Business Credit?
The way you repay your loans will have an impact on your business credit score. If you repay the loans on time, your business credit will not suffer and your credit score will be healthy.
Installment credit is considered less harmful to your credit score.
Installment Credit vs. Revolving Credit. What’s the difference?
Installment credit comes with a principal, a rate of interest and repayment time. Thus, it is also known as a term loan because the loan has to be repaid within the fixed term whereas revolving credit is open-ended and the funds that are repaid can be borrowed again.
Credit card borrowing is a major example of revolving credit while personal loans are installment credit.
Examples of Installment Credit
Various mortgages and car loans are examples of installment credit. A mortgage on a business building or a loan for a business vehicle are examples of business installment credit. Small businesses often take installment credit to meet up the financial requirements of their business.
Knowing about installment credit will help you to take the right loan for your business or personal reason and solve your financial problem.