Understanding Installment Loans: How Do They Work?

We’ve all been in situations where we needed money but didn’t have the resources for it. Installment loans can be an incredible tool to help you with finances when used effectively. However, the term installment may sound scary or intimidating to someone who’s never obtained a loan before.

Whether from a bank or an online lender, installment loans can help you deal with high, lump-sum costs that you may not have the budget for. Unprecedented incidents, such as car malfunction or sudden medical expenses, can push a person’s savings over the edge. Installment loans have helped a lot of people overcome financial difficulties in the past.

Types of Installment Loans

“Installment Loan” is an umbrella term for many types of loans. The most common type is the unsecured installment loan, which does not require any collateral but depends on the borrower’s creditworthiness.

Title Loans

Title loans are installment loans that require collateral in the form of a title, such as a house’s title lot or a car’s ownership papers. Although it is a more secure way of lending, be warned that the lender can reclaim your collateral if you fail to default on your payments.

Credit Cards

Another type of installment loan is through credit card. Their only difference from a regular loan is that each bank has a varying interest rate that either raises or lowers your monthly payment amounts.

It may be fast cash, but credit cards can cause a lot of people to go into bankruptcy since people would not have an idea of how much they’re spending. If you are using credit cards, ensure that you stay responsible for what you spend on and cover the things you bought and borrowed without excuses.

Payday Loans

Probably the highest wager among all three, payday loans are unsecured cash advances on your earnings. They are different from most installment loans since they charge a high interest rate which can go up to three digits. Payday loans can be dangerous to those who are already financially unstable.

What to Consider Before Getting an Installment Loan

If your last resort to get by is through a loan, then consider these five things to ensure you don’t bury yourself in debt. Having debts can cripple your financial stability and put a strain on your mental and emotional health. Before borrowing that money, ask yourself these five things and the person lending you the money to give you an idea of how you’ll pay it off.

  1. Can you pay it off?
  2. What is the interest rate?
  3. Are there additional fees?
  4. How long do I have to pay for it?
  5. How long will it take for me to receive the loan?


Being in debt is something we shouldn’t be ashamed of; after all, not all debt is bad. However, taking care of what we owe is a big responsibility that we may carry for a long time. Before you take on a loan, make sure you have everything calculated, from your salary, to how much you need to pay monthly. In the end, if it all works out, you’ll be debt-free in no time.

Shelby Finance is a ,personal loan company that has been serving the local community since the year 2000. Based in Memphis, our goal is to put our clients first along with their needs. We have a team ready to accommodate your needs, from small loans to installment loans. Apply to our loan programs and let us help you with your future.