Understanding Instalment Loans: Types, Benefits, and How They Work

Instalment loans offer a straightforward way to borrow a specific amount of money and pay it back through fixed monthly payments. These loans are popular for various uses, like buying a car or handling unexpected expenses. Keep reading to understand how these instalment loans work, what types there are, and their benefits.

What Are Instalment Loans and How Do They Work?

Instalment loans let you borrow a lump sum from a lender, which you then repay in equal monthly instalments over a set period. Each payment includes part of the principal (the original amount borrowed) and interest, which can be calculated using either a flat rate or a decreasing balance method.

Unlike credit cards, where you can keep spending and repaying, instalment loans give you a single amount upfront and a clear repayment timeline. This makes it easier to manage your monthly budget since you know exactly what to expect in terms of payments.

Here’s how the process typically works:

• Application: You start by giving the lender your personal and financial information. Depending on the type of loan, you might need to provide some form of collateral.
• Approval: The lender reviews your credit score, income, and other paperwork to see if you qualify.
• Disbursement: Once approved, the loan amount is transferred directly to your bank account.
• Repayment: You pay back the loan in fixed monthly instalments over the agreed-upon period. Each payment lowers your outstanding balance until everything is fully paid off, including interest.

Also Read: Top 8 Useful Tips to Get Your First Personal Loan

Types of Instalment Loans You Can Apply For

In India, there are several types of instalment loans available, each tailored to meet different financial needs. Here are some of the most common types:

Personal Loan

A Personal Loan is an unsecured instalment loan, meaning you do not have to offer any asset for collateral. These loans are ideal for urgent cash needs, medical expenses, travel, or home repairs—the usage is wide-spread since there’s no end-use restricion. The loan amount and tenure are flexible, though they largely vary with your income and credit profile.

Gold Loan

A Gold Loan is a secured instalment loan, where your gold jewellery acts as collateral. The application process is usually fast, and the interest rates are often lower since the loan is secured.

Home Loan

A home loan, one of the most significant commitments, gives you the ability to buy or construct property. Due to the large sum and long tenure, the EMI schedule can stretch up to 30 years. The property itself serves as security for the lender.

Also Read: Can a Gold Loan Improve Your Credit Score: Benefits & Insights

Vehicle Loan

Vehicle loans, such as a car loan or a two-wheeler loan, help finance your next vehicle. The purchased vehicle acts as collateral. The EMIs are fixed for the tenure, which commonly ranges from one to seven years. A similar variant is the Pre-owned Car Loan, ideal for second-hand car purchases.

Education Loan

An Education Loan supports students in funding tuition and other academic expenses. Repayment often starts after a set moratorium period. This gives students the flexibility to finish their education before they begin paying EMIs.

Key Benefits of Taking Instalment Loans

• Budgeting made simple: The EMIs are fixed, so the repayment amount is always known, and it sets boundaries against overspending or missing payments.
• Credit building: Your regular, timely payments will be reported to the credit bureaus, which can improve your credit score over time.
• Lower interest rates: Instalment loans mostly offer better interest rates than credit cards and payday advances. The same holds if you have enabled your credit profile or if you avail of a secured loan.
• Flexible options: Whatever the situation, you can select the loan amount and the tenure that best suits you. It may be a small Personal Loan you need for a few months, or a home loan you want over decades.
• Speed and convenience: Since the emergence of Instalment Loans online, application has become much more convenient. The entire process typically happens online, and disbursal is mostly speedy once approved.

Also Read: Personal Loan vs Bike Loan: Which One Makes Sense After GST Reform

To Conclude

Instalment loans provide a reliable and structured way to borrow, supporting everything from emergencies to major life goals. Knowing their types, benefits, and workings lets you approach borrowing decisions with confidence.

With Poonawalla Fincorp, instalment loans are made hassle-free with benefits like paperless application and flexible EMI tenure. Explore the complete range of instalment loans on the official website.

Frequently Asked Questions

What is the interest rate structure for instalment loans?

Instalment loans typically have either a fixed or a floating interest rate. Fixed rates remain the same throughout your loan tenure, while floating rates may change based on market conditions. Always confirm the rate structure while applying.

Can I apply for instalment loan online with a low credit score?

While a strong credit score improves your chances, some NBFCs do consider applicants with lower scores. This is especially true if you have a stable income or can offer collateral. However, you may face higher interest rates.

What documents do I need to apply for instalment loan online?

Most lenders require proof of identity (PAN/Aadhaar), proof of address, income statements, and photographs. Secured loans will also need documents for the pledged asset.

Are instalment loans secured or unsecured?

Instalment loans can be either, depending on what type of loan it is. A Personal Loan is typically unsecured, while a home loan, Gold Loan, or vehicle loan is secured by collateral.

What is the maximum tenure for instalment loans in India?

The tenure depends on the loan type. Personal loans usually last from one to five years, while home loans can extend up to 30 years. Always confirm the maximum term with your chosen lender.