Installment loan

An installment loan is a loan that is repaid over time with a set number of scheduled payments;[1] normally at least two payments are made towards the loan. The term of loan may be as little as a few months and as long as 30 years. A mortgage, for example, is a type of installment loan.

The term is most strongly associated with traditional consumer loans, originated and serviced locally, and repaid over time by regular payments of principal and interest. These “installment loans” are generally considered to be safe and affordable alternatives to payday and title loans, and to open ended credit such as credit cards.

In 2007 the US Department of Defense exempted installment loans from legislation designed to prohibit predatory lending to service personnel and their families, acknowledging in its report[2] the need to protect access to beneficial installment credit while closing down less safe forms of credit.

History

The installment loans were at first used by Singer company for financing the purchase of their sewing machines in 1850. After Singer, other companies started to use installment loans. In 1899 in Boston, more than a half of furniture dealers used such kind of loans. Around 1990, installment loans were commonly used to finance sewing machines, radios, electric refrigerators, phonographs, washing machines, vacuum cleaners, jewelry and clothing. By 1924, 75% of automobiles were purchased with installment loans.[3]

References

  1. ↑ "Loans". Entrepreneur Media. Retrieved 10 March 2015.
  2. ↑ Limitations on Terms of Consumer Credit Extended to Service Members and Dependents; Final Rule
  3. ↑ Rhode, Steve (December 3, 2009). "The History of Credit & Debt – Early Installment Sales". GetOutOfDebt.org.


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