An installment loan is any loan that a borrower repays through fixed monthly payments or “installments.” They’re a very common form of funding for many types of borrowers, even those with bad credit. While some loans require decent credit, many installment loans can be obtained with a poor credit score.
These kinds of online personal loans are a popular form of credit, with approximately 27.5% of American adults having at least one installment loan in the third quarter of 2020, according to the Federal Reserve Bank of New York.¹ These personal loans also involve repaying the borrowed money through a series of scheduled payments or “installments”, rather than a lump sum. And many installment loans can be found online.
Online installment loans with monthly payments come in many forms and they all carry different interest rates and terms. While they’re available to both businesses and personal, for the context of this content we will be focusing on the personal installment loan. Whether you’re considering an auto loan, mortgage, home equity loans or an online installment loan, it’s important to familiarize yourself with how this form of credit works.
Types of Installment Loans
There are various types of online installment loans, such as:
- Personal loans
- Auto loans
- Mortgages
- Student Loans
- Home equity loans
- Debt consolidation loans
These installment loans serve different purposes, and terms, conditions, and credit requirements can vary. For example, consumers with high credit scores may have an easier time finding approval for higher loan amounts or lower interest rates compared to bad credit borrowers.
Essentially, any personal loan where you receive your funds up front and then repay them through regular monthly payments would be considered an installment loan. This applies to an online installment loan, as well as in-person options.
Some installment loans may be classified as “bad credit loans,” if they cater to borrowers with poor credit. Bad credit installment loans may offer borrowers a safer alternative to payday or title loans. This type of installment loan can also be found online or in person. Remember to be just as thorough when researching an installment loan online, as one that’s in person.
Advantages of Online Installment Loans:
- Fixed rates: Installment loans offer predictable interest rates.
- Manageable monthly installments: Borrowers can easily budget for their loan repayments.
- Credit-building potential: Timely payments can help improve bad credit over time.
- Financing larger purchases and debt consolidation: These kinds of personal loans can be used for various expenses or to consolidate outstanding debt.
- Competitive borrowing rates: Compared to other short-term credit options, installment loans often have lower cost to borrow.
- Approval for borrowers with less-than-perfect credit: Lenders may consider a borrower’s ability to repay the loan rather than solely relying on their credit history or credit score. There are even lenders who specialize in installment loans for bad credit.
Disadvantages of Online Installment Loans:
- Risk of repossession: Secured loans may involve the loss of collateral if payments are not made on time.
- Long-term financial commitment: Borrowers must commit to making installments over an extended period.
- Fees and penalties: Early repayment or defaulting on the loan may result in additional costs.
- Higher interest rates for bad credit borrowers: Those with lower credit scores may face higher cost to borrow or may not qualify for some installment loans.
Online Installment Lenders
When looking for the best low credit installment loans online, it’s important to compare multiple lenders to find the best interest rate and credit terms for your specific needs, especially if you have bad credit or a poor credit history. You can obtain installment loans from various financial institutions, such as banks, credit unions, and online lenders, as well as some peer-to-peer lending platforms which can also be found online.
When comparing online lenders, consider factors like APR, loan terms, repayment terms, and customer service. Look for lenders that offer a competitive interest rate and favorable terms, as well as the ability to set up automatic payments to avoid late fees. Also, check for any associated fees with payment methods, which may include online payment with a debit/credit card or bank account, cash, or check, and confirm them with the lender.
By taking the time to compare online lenders and best low credit installment loans for your needs, you can secure the funds you need and make repayments without financial strain.
Variations of Installment Loans
| Loan Type | Interest Rate | Repayment Term | Loan Amount Range | Collateral Required | Typical Use Cases |
| Installment Loan | Fixed | Varies | $100 – $100,000+ | Sometimes | Various purposes |
| Personal Loan | Fixed or Variable | 1 – 7 years | $1,000 – $50,000+ | No | Debt consolidation, expenses |
| Auto Loan | Fixed or Variable | 1 – 7 years | $5,000 – $100,000+ | Yes (Vehicle) | Vehicle purchase |
| Mortgage | Fixed or Variable | 15 – 30 years | $50,000 – $1M+ | Yes (Property) | Home purchase |
| Payday Loan | High, fixed | 2 – 4 weeks | $100 – $1,000 | No | Short-term cash flow |
10 Steps to Getting a Personal Installment Loan Online
- Assess your financial situation and credit score with credit bureaus. If you have extremely bad credit, you may want to consider improving your credit score first before applying for an installment loan.
- Determine how much money you need to borrow and what you can afford to repay.
- Research and compare different installment loan options, including lenders and loan terms.
- Gather the necessary documentation, such as proof of income, employment, and residency.
- Submit your loan application, either online or in-person.
- Wait for the lender to review and approve your application, which may involve a credit check.
- Review the loan terms and conditions carefully before accepting the online personal loan.
- Sign the loan agreement and provide any additional requested information.
- Receive the loan funds in your bank account.
- Make timely monthly payments according to the agreed-upon schedule until the loan is fully paid off. Failure to do so could harm your credit score.
Common Personal Loan Fees and Charges
- Origination Fees
- Some lenders charge origination fees, which cover the cost of processing the loan application and approval.
- They may charge a flat rate or a percentage of the loan amount.
- Fees may vary depending on the lender and the borrower’s creditworthiness.
- Late Payment Fees
- Missing a loan payment installment can sometimes result in a late fee.
- Check the loan agreement before signing to be familiar with potential late payment fees.
- Other Fees
- Installment loans may also include prepayment penalties or insufficient fund fees if a payment installment is returned.
- Lenders may charge fees for loan modifications, payment deferrals, or loan refinancing.
- Lenders are required to disclose information about fees and charges.
- If you’re unsure about any fees or confused, be sure to ask your lender.
Alternatives to Installment Loans
Credit cards, lines of credit, and payday loans would all be considered alternatives to personal installment loans. No matter which type of loan or form of credit you’re seeking approval for, make sure to thoroughly review the terms and conditions to get the best deal.
Other alternatives may include borrowing from friends or family, using a home equity loan or line of credit, or exploring government-backed lending programs for specific needs, such as education or home improvement.
Online Installment Loan vs. Instant Payday Loan
Online Installment Loans | Payday Loans | |
Repayment | ✓ Repaid through a series of fixed, scheduled payments | ✗ Short-term single payment loan due in full, usually on the borrower’s next payday |
Interest Rates | ✓ Typically have fixed rates | ✗ Often have very high rates and fees |
Repayment Terms | ✓ Longer repayment terms, ranging from a few months to several years, with fixed monthly installments | ✓ Designed to cover short-term cash shortages |
Loan Amounts | ✓ Some borrowers can qualify for large loan amounts | ✓ Smaller loan amounts, typically no more than a few hundred dollars |
Purpose | ✓ Can be used to finance various expenses or consolidate debt | ✓ Intended to cover immediate financial needs or gaps |
Approval Criteria | ✓ Borrowers with less-than-perfect credit scores can be approved based on their ability to repay | ✓ Bad credit borrowers may still be approved |
Financial Risk | ✓ Potential fees and penalties for early repayment or default, higher rates for poor credit borrowers | ✗ Can lead to a cycle of debt if not used responsibly, high risk of falling into a debt cycle |
Credit Building | ✓ Ability to build credit over time | ✗ Typically do not report to credit bureaus |
Competitive Interest Rates | ✓ Very competitive compared to other forms of short-term credit | ✗ Higher rates and fees compared to other forms of credit |
Risk of Repossession | ✗ Risk of repossession (for secured loans) | ✗ Typically do not require collateral |
Long-term Financial Commitment | ✗ Long-term financial commitment | ✗ Short-term loans |
FAQs about Online Installment Loans
What is an installment loan?
An installment loan is a type of personal loan that allows borrowers to repay their loan through regular monthly payments. Common examples of installment loans include personal loans, auto loans, and mortgages.
How do installment loans work?
Installment loans have fixed rates and equal monthly installments, making it easier for borrowers to budget and plan for repayment. The borrower receives the loan amount upfront and makes regular installments until the loan is paid off in full.
How do I qualify for instant approval on an installment loan?
You can usually qualify for an installment loan based on a decent financial history and credit score, and a bank account in good standing. Lenders may also require collateral for some types of personal loans. This type of personal loan is referred to as a secured loan. Borrowers with bad credit may have to shop around more in order to find loan approval. You may find what you need through an online installment loan.
What factors determine the interest rate for an installment loan?
Usually, for an installment loan, rates are determined by factors like the borrower’s credit history, loan amount, and repayment term. Usually, borrowers with good credit are rewarded with lower interest rates for personal loans while bad credit borrowers may only qualify for higher rates.
Can I pay off my loan early?
Some installment loans with monthly payments allow borrowers to make additional payments or pay off the loan early without penalties, while others may charge fees for prepayment. Make sure you know the prepayment terms of your personal loan.
What happens if I default on an installment loan?
If you default on an installment loan, you might see legal action taken against you, additional fees and interest charges, and a decline in your credit score. Missing payments of defaulting on your loan could leave you with bad credit for up to seven years. There it’s essential to communicate with your lender if you are experiencing financial difficulties to explore potential solutions or alternative repayment options.
How are instant online installment loans different?
Online installment loans with monthly payments are usually the exact same thing as an in-person installment loan. With both online loans and in-person loans you’ll still need to apply, be approved, receive funding, and repay the loan like normal. The main difference is that installment loans online can be more convenient. If you’re considering installment loans online, make sure you do the same research you would for a conventional loan.
Required Documentation FAQs
The required documents may vary by lender, but typically include proof of income, identity, and address, as well as bank statements and employment information. This is usually true for an online installment loan or in person option.
Yes, a lower credit score may require additional documentation or proof of income in order to receive an installment loan.
It depends on the lender, but many direct lenders require a bank account for loan disbursement and repayment on your installment loan.
Most lenders allow you to submit documentation online, by email, or through fax or mail. Check to see if your specific installment loan offers online applications and funding.
You may not be able to complete the loan application process without all the required documentation. Contact the lender to discuss alternative options.
Approval times can vary by lender and individual circumstances, but it typically takes a few business days to receive a decision.
Yes, if additional documentation is needed, the lender will usually contact you by phone, email, or through their online platform.
You may need to provide additional documentation, such as tax returns or profit and loss statements, to verify your income.
Most lenders allow electronic copies of documents, but check with the lender to confirm their specific requirements.
Yes, reputable lenders have privacy policies and take measures to protect their customers’ personal information.
Credit Score Implication FAQ
Timely payments on your installment loan can positively impact your credit score, while late or missed payments can harm it. If you are trying to maintain a healthy credit score or improve bad credit, making on-time installments is essential.
Maintaining a low credit utilization ratio, generally below 30%, is recommended for avoiding bad credit. Paying off an installment loan can impact your overall credit utilization if you have other loans with monthly payments or lines of credit.
Having a diverse credit mix, including installment loans, credit cards, and other types of credit, can positively affect your score. Adding an installment loan to your credit profile can help improve your credit mix and boost your credit score with major credit bureaus.
Taking out a new installment loan can lower your average account age, which may temporarily impact your credit score. However, consistent, on-time payments can lessen the impact and even help improve bad credit over time.
Yes, applying for an installment loan results in a hard credit inquiry, which can temporarily lower your score by a few points. While one credit inquiry won’t automatically give you bad credit, submitting multiple applications for approval within a short period of time may cause your score to drop quite a bit.
Recognizing and Avoiding Predatory Lending Practices
While instant online installment loans can be a helpful financial tool, it’s essential to be aware of potential scams or predatory lending practices with these loans. Unscrupulous lenders may take advantage of borrowers in need by using high-pressure sales tactics, charging excessive fees, or providing unclear loan terms. These lenders often prey upon people with bad credit, since these borrowers often have trouble finding loan approval.
Here are some warning signs to watch out for and tips on how to avoid falling victim to such schemes in regards to installment loans:
- High-pressure sales tactics: Be cautious of lenders who pressure you to make quick decisions, try to rush you through the loan process, or make you feel uncomfortable. Reputable lenders will give you ample time to review and understand the loan terms and conditions.
- Excessive fees and interest rates: Predatory lenders may charge excessive fees and interest rates, making it challenging to repay the loan. Always compare the rates and fees of different lenders before committing to an installment loan. Make sure to understand the total cost of borrowing, including any fees, over the life of the loan. And remember, having multiple installment loans at one time may make it harder to improve bad credit.
- Unclear loan terms: A reputable lender should provide clear and transparent loan terms, including the interest rate, fees, payment schedule, and consequences of non-payment or late payment. If your lender won’t provide this type of information, it may be a red flag.
- No credit check loans or guaranteed approvals: Be wary of lenders who claim to offer installment loans without a credit check or guarantee loan approval. While this offer may seem appealing to borrowers with bad credit, it’s often a predatory lending practice. Legitimate lenders will typically perform some credit assessment to determine your ability to repay the loan before granting approval.
- Upfront fees or payment requests: Scammers may ask for fees or payment installments upfront before providing any loan funds. Legitimate lenders typically do not require any payment before processing your loan application and approval.
- Unprofessional or unsecured websites: If a lender’s website appears unprofessional or does not have a secure connection (indicated by a padlock icon or “https” in the web address), it may be a sign of a scam. Reputable online lenders will have professionally designed websites and secure connections to protect your personal information.
By staying vigilant and informed, you can protect yourself from installment loan scams and make better financial decisions. Remember, always take your time to research and compare lenders before committing to any loan, especially if you have bad credit. An installment loan should help your situation, not make it more difficult.
Resources and Assistance for Struggling Borrowers
If you’re struggling with your installment loans, non-profit credit counseling agencies and government-backed programs and loans can help you manage your debt and improve your financial situation. Here are some resources to consider:
- National Foundation for Credit Counseling (NFCC): A non-profit organization offering credit counseling services, financial education, budgeting assistance, and debt management plans for consumers with bad credit. Contact them at https://www.nfcc.org/ or call 1-800-388-2227 for assistance.
- Financial Counseling Association of America (FCAA): Another non-profit organization offering counseling, debt management, and financial education services. Find a list of accredited agencies on their website at https://fcaa.org/.
- Consumer Financial Protection Bureau (CFPB): A government agency providing educational resources and tools to help borrowers make informed financial decisions. Visit their website at https://www.consumerfinance.gov/ for more information and resources.
- State and Local Government Programs: Many states and local governments offer financial assistance programs or resources to help residents struggling with debt. Check with your state or local government’s website or call their offices to inquire about available programs.
- Credit Unions and Community Bank loans: Some credit unions and community banks may offer financial counseling or debt management services to their members or customers. Contact your local credit union or community bank to see if they provide such services.
- Employee Assistance Programs (EAPs): Some employers may offer financial assistance and counseling to their employees. Check with your employer to see if they offer an EAP and how to access its services.
Editorial Notes
As a lender committed to responsible lending, we want to offer the following advice to potential borrowers considering a personal installment loan or any online loan. It is extremely important to carefully assess your financial situation and needs before committing to any loan, including installment loans or payday loans. Make sure to understand all the fees, terms, and conditions associated with the loan you are considering, whether online or in person.
Installment loans can be a sensible financing option for borrowers seeking online loans with monthly payments that come with a predictable schedule and fixed interest rates. An installment loan can help manage long-term expenses and make debt consolidation easier. However, it is crucial to choose a reputable lender offering an installment loan with competitive rates and flexible repayment options, as well as understanding the terms and conditions, interest rates, and fees associated with the loan before committing.
Remember that responsible borrowing and making on time payments are key to making the most out of your installment loan. This will not only help you manage your debt and improve your financial situation but can also pave the way for better loan terms and easy approval for funding in the future.
Sources:
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