Best Installment Loans

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

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.

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:

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.

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:

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.