Credit comes in many different sizes and shapes. One way of differentiating it is by the method of payment, with the breakdown in two parts.
Single payment loans
Single payment loans are those paid back in one lump sum at maturity. While others are demand loans, which are repayable whenever the lender makes a request for payment. Although some single payment loans require interest to be paid monthly or quarterly, the key point is that the entire principle is due in one payment. Such loans are frequently renewable at the interest rate that is current at the time of renewal.
In contrast, both interest and principle of installment loans are repaid in specific amounts at specific times. Such loans, which may be for a car or an appliance, are normally paid back monthly, with the most widely used schedules calling for paybacks over twelve to sixty months. Even if your monthly rates are equal during the payback period, you are paying more interest and less principle during the payments at the start of the loan than those at the end. Late charges are typically assessed for missed payments.
Loans can also be divided into the secured an unsecured variety. Secured personal loans are those for which a specified item serves as security or collateral for repayment. For most secured loans, such as those involving the purchase of a home or an automobile, the security is the product that has been purchased on credit. Passbook loans are secured by your savings account and require that you always retain the amount of the loan in your account. However, for other loans, the collateral is an item of value that is unrelated to the purpose for which credit was undertaken. For instance, jewelry or furs can be pledged as collateral with certain lenders who hold the property in return for granting a loan.
Loans such as those in the title pan and or title loan industries are typically secured loans with the vehicle title being held as collateral for the loan. Even with the title being held as collateral, car title loans are still considered to be a high-risk loan, and in turn tend to carry a higher interest rate than one would expect to get at a bank.
Most lenders that lend money on vehicle titles tend to charge around the same interest rates. Borrowers seeking to pawn their car titles for quick cash need to be aware of this ahead of time prior to considering this type of loan as an option.