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Best Installment Loans | Find the Best Loan for You

An installment loan can describe any number of credit options that provide a lump-sum disbursement of the loan amount and regular payments.

What Is an Installment Loan?

An installment loan is a form of credit that provides a borrower with a fixed amount of money, usually up front, which the buyer is required to repay in regular installments. A portion of each installment loan payment goes toward the interest that has accrued since the last installment, and the remainder goes toward paying down the principal balance of the loan.

In contrast, revolving lines of credit, such as credit cards, offer a line of credit that a borrower can use over and over again.

“An installment loan is your best option when you know how much money you will need,” says Mike Vierzba, education coordinator at Ent Credit Union in Colorado. “The other major benefit will be installment loans are cheaper debt, meaning they will generally have a lower interest rate than their revolving counterparts.”

There are many different types of installment loans available, both secured and unsecured. With a secured loan, the borrower provides an asset to act as collateral. In the event that the borrower fails to repay the loan, the lender can seize the collateral and recoup the remaining loan amount.

Common secured installment loans include mortgage loans and auto loans.

With an unsecured installment loan, the borrower doesn’t have to provide collateral, which means there’s no asset for the lender to seize if the borrower defaults, or can’t pay. Common unsecured installment loans include personal loans and student loans.

Secured installment loans often offer lower interest rates because the collateral reduces the risk of the loan for the lender. However, defaulting on a home or car loan could be a devastating experience because the borrower would lose his home or car.

Though borrowers with unsecured installment loans don’t have to worry about repossession or foreclosure, it can be more difficult to get approved. “The bar for approval will be higher on unsecured loans,” says Vierzba.

How to Get an Installment Loan

Depending on the type of loan you want, the process to secure one can vary. Here’s an overview of how to apply for some of the most common installment loans:

  • How to apply for a mortgage loan. You’ll typically apply directly with the lender or through a mortgage broker. The mortgage application and underwriting process requires a lot of documentation to ensure that you’re eligible. Conventional mortgages typically require at least a 620 credit score and a debt-to-income ratio of no more than 43%, but there are government-backed loan programs with less stringent requirements.
  • How to apply for an auto loan. Car buyers can apply for an auto loan directly with lenders or via dealer-arranged financing. Documentation requirements can vary depending on your creditworthiness. It’s possible to get an auto loan even with bad credit, but your DTI should generally be under 50%.
  • How to apply for a student loan. College students and their parents can apply for either federal or private student loans. The first step is to fill out the Free Application for Federal Student Aid. With federal student loans, there’s no minimum credit score requirement. The Direct PLUS loan program, which is designed for parents and graduate and professional students, does require a credit check to assess certain negative items in your credit history. If you want private student loans, the minimum credit score is generally in the mid-to-upper-600s. DTI requirements can vary by lender.

Find the Best Student Loans for You

Methodology:

U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.

To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. The scoring factors for private student loan providers are customer service ratings, fixed APR, variable APR, loan product availability, minimum and maximum loan terms, minimum and maximum loan amounts, minimum FICO score, and online features.

The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.

To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.

  • How to apply for a personal loan. Personal loans are available across the credit spectrum, though if you have bad credit, you may be faced with high interest rates and fees. While most personal installment loans are unsecured, you can get a savings-secured personal loan, which uses cash in your savings account as collateral. Minimum credit score and maximum DTI requirements can vary by lender. You’ll typically apply directly with a lender to obtain one.
  • Find the Best Personal Loans for You

    Methodology: U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.

    To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees.
    The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.

    To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.

  • How to apply for a credit-builder loan. This type of installment loan works a bit differently from others – you get the loan amount after you’ve finished paying off the debt instead of up front. Credit-builder loans are designed for people who are new to credit or have a poor credit history. They’re great for establishing a positive payment history. Not all lenders offer credit-builder loans; check with your local community bank or credit union first. You’ll apply directly with a lender to get a credit-builder loan.
  • How to apply for a small business loan. Commercial lenders typically require a good business or personal credit history, two or more years in business and a minimum amount of revenue. All of these requirements can vary, however, so it’s important to shop around and apply directly with lenders to find the best fit for your business.
  • Can I Get an Installment Loan with Bad Credit?

    There are many different installment loans for bad credit, though options can vary, depending on the type of loan you’re looking for.

    With mortgages, for instance, most lenders require a credit score of 620 or higher. And while you can go as low as 500 with a Federal Housing Administration loan, your best bet is to build your credit history before you apply.

    Other loan options can have lower credit requirements. While you can get installment loans with bad credit, including auto loans, personal loans, student loans and even small business loans, the catch is that the loan will be expensive.

    For example, personal loan companies typically charge up to 36% interest, but some bad-credit personal loans rise into the triple digits. You could face an interest rate of more than 17% for a bad credit auto loan, compared with close to 6% if you had very good credit, according to U.S. News data on auto loan rates.

    If you need money now, though, and don’t have time to improve your credit, shop around and compare lenders. In some cases, you can use an online marketplace that allows you to compare multiple loan offers side by side based on your credit profile. These prequalification tools typically require just a soft credit check, which won’t impact your credit score.

    Some lenders may look beyond your credit score to offer decent terms. “These days there are fintech companies who are issuing personal loans to people with bad credit at competitive rates,” says Tomy Boboy, founder of Everyday Finance, “because they’re able to pull your banking data to get a better picture of your financial situation.”

    As you compare options, be sure to look at interest rates, fees, repayment terms and other features that could impact your budget.

    How to Find Installment Loans with Good Interest Rates

    Interest is the cost you incur for the privilege of borrowing money, and scoring a lower interest rate could save you hundreds, thousands or even tens of thousands of dollars over the life of your loan.

    Here are some steps you can take to ensure you get the lowest interest rate possible:

    • Improve your credit. Most lenders use risk-based pricing, which means that your interest rate is directly correlated with the likelihood that you’ll default on the debt. The higher your credit score, the less likely you are to miss payments. Check your credit score and credit report to get an idea of where you stand, then take steps to address potential credit issues so you can increase your score.
    • Shop around. With most installment loans, the criteria for determining interest rates will vary from lender to lender. The only exception is with federal student loans, which offer standardized rates for all who qualify. When possible, take advantage of prequalification tools to view and compare rate offers without a hard credit check. Also, make sure you’re comparing apples to apples. Lenders may offer both fixed and variable interest rates, but the two are very different in how they work and how much they might cost.
    • Offer a larger down payment. If you’re taking out a loan to buy a car or a home, putting more money down can lower the loan’s interest rate because it shows that you’re invested. Just be sure to leave some cash reserves in your savings account to cover emergencies.
    • Apply with a co-signer. Some installment loans allow you to apply with a co-signer to improve your chances of getting approved and scoring a low interest rate. If you want to go this route, be sure to apply with someone who has a stellar credit history.
    • Opt for a shorter repayment period. Lenders typically charge higher interest rates on loans with long repayment terms to account for the risk that interest rates will rise over time and they’ll miss out on higher profits. While a shorter repayment period means a higher monthly payment, it can save you overall thanks to the lower interest rate.

    Installment Loans vs. Payday Loans

    People with poor credit may feel that their financing options are limited and turn to payday loans to get access to quick cash. Unlike installment loans, payday loans require a single payment, typically within 14 days of the loan disbursement.

    Payday loans also charge exorbitant interest rates, with annual percentage rates that can soar as high as 664%, depending on the state.

    Because payday loans charge predatory interest rates and don’t offer the chance to repay in installments, most borrowers can’t pay them back on time. According to a study by the Consumer Financial Protection Bureau, more than 80% of payday loans are renewed or rolled over into a new payday loan within two weeks.

    The result is compounding interest charges and fees that make it even more challenging to repay the debt. “The more you look at payday loans,” says Boboy, “it almost seems like you’re guaranteed to fail, doesn’t it?”

    So if you’re thinking about applying for a payday loan, take extra time to research other options, such as payday alternative loans from your local credit union, or personal loans. You may also consider reaching out to local organizations that can offer emergency financial assistance.

    Advertising Disclosure: Some of the loan offers on this site are from companies
    who are advertising clients of U.S. News. Advertising considerations may impact
    where offers appear on the site but do not affect any editorial decisions,
    such as which loan products we write about and how we evaluate them. This site
    does not include all loan companies or all loan offers available in the marketplace.


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