What Is an Installment Loan?

If you’ve considered borrowing money for an expense, you may have wondered, “What are installment loans?” Installment loans can get you the funds you need quickly and may be used for purposes like paying off higher-interest debt or covering the purchase of a large expense.

Personal loans, car loans, student loans and mortgages are all installment loan types. Use this guide to installment loans to see if they’re a good option for you.

Check Your Personal Loan Rates

Answer a few questions to see which personal loans you pre-qualify for. It’s quick and easy, and it will not impact your credit score.

Get Started

with our trusted partners at Bankrate.com

In this article

    What is an installment loan?

    Installment loans are any type of loan that provides a lump sum of money and requires loan payments back on a fixed schedule, or in installments. The loan payments are fixed amounts with fixed interest rates, so the payments you’ll be making to pay off the loan are predictable over the length of the loan.

    Some people use installment loans to pay for significant expenses, like college, a home or a car purchase. Installment loans can also be used to consolidate credit card debt, pay off emergency expenses like medical bills and cover large purchases like home remodeling.

    [ Read: Quick Personal Loans: Best Fast Cash Lenders ]

    How do installment loans work?

    When you’re taking out an installment loan, you’ll let the lender know what you want to borrow and what type of time frame you want to pay off the loan. Depending on your credit score and credit history, the lender will offer you a fixed interest rate on the loan and specific terms.

    With installment loan terms, you may be required to offer up collateral to take out the loan. Other terms will include late fees for missed payments and the payment due date each month. If you do miss a payment on an installment loan, your credit score may be affected.

    [ More: The Best Personal Loan Rates ]

    Monthly payments

    Installment loans require monthly payments to pay off the loan. You’ll know what amount to expect for each payment and when you’re supposed to pay by, so payments are predictable. The monthly payment amount will go towards paying off the principal, as well as some of the interest you owe.

    If you miss a monthly payment and are late with paying it, you’ll likely have to pay for late fees. Your credit score may also be negatively impacted by missing a monthly payment.

    Interest and APR

    Interest rates and APRs have similarities, as well as some key differences. The interest rate refers to the percentage of the principal loan amount remaining that will be tacked on what’s due. APR — or annual percentage rate — refers to the annual cost of a personal loan to a borrower, including fees. So while the interest rate only applies to the loan amount, an APR will account for fees like installment loan insurance, loan origination fees, closing costs and discount points.

    [ Related: What Is APR? ]

    Each month, the total amount of what you pay is determined by the interest rate, which is determined by your credit score and history. Bad credit loans usually come with higher rates and fees. The APR represents much you’ll pay each year for all your loan costs, including fees.

    Pros and cons of installment loans

    ProsMoney to pay for large expensesMay have low interest ratesPredictable payment installments
    ConsLittle flexibilityInterest payment is requiredAffects your credit score

    Bad credit installment loans

    Best for Fast Funding – OneMain Financial

    OneMain Financial has fast cash for bad credit, but be ready to pay the price — high APRs come with this form of lending.

    APR Range
    18%–35.99%
    Term
    24–60 months
    Loan Amount
    $1,500–$20K
    SimpleScore
    4.4 / 5.0
    close
    SimpleScore OneMain Financial 4.4
    Rates 4
    Loan Size 5
    Terms 5
    Support 5
    Fees 3

    OneMain Financial offers both secured and unsecured personal loans. A secured personal loan with OneMain Financial will require the borrower to provide collateral, like a motor vehicle, to get the loan.

    There’s no minimum credit score to apply for an installment loan with OneMain Financial. You may be able to get funds on the same business day if you’re approved before noon and visit a OneMain Financial branch. 

    Loan amounts range between $1,500 to $20,000, with terms of 24, 36, 48 or 60 months. The APR range for OneMain Financial installment loans is 18% to 35.99%. Learn more about OneMain Financial personal loans in our full review.

    OneMain Financial Disclosure

    Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum APR is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. The lowest APR shown represents the 10% of loans with the most favorable APR. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes.

    Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.

    Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: Florida: $8,000. Iowa: $8,500. Maine: $7,000. Mississippi: $7,500. North Carolina: $7,500. New York: $20,000. Texas: $8,000. West Virginia: $7,500. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.

    Best Overall – Avant

    Avant is the frontrunner of bad credit installment loans, and with a great mobile app to boot, you can get a personal loan on the run.

    APR Range
    9.95%–35.99%
    Term
    24–60 months
    Loan Amount
    $2K–$35K
    SimpleScore
    4 / 5.0
    close
    SimpleScore Avant 4
    Rates 2
    Loan Size 5
    Terms 5
    Support 5
    Fees 3

    Avant also offers both secured and unsecured loans.  You can get an installment loan with Avant for up to $35,000. The minimum loan amount is $2,000, which may be higher than what you’re looking for. APRs range from 9.95% to 35.99%, with loan terms ranging from 24 to 60 months. There’s an administration fee of up to 4.75% on Avant installment loans. Learn more about Avant’s personal loans.

    Avant Disclosure

    The actual loan amount, term, and APR amount of loan that a customer qualifies for may vary based on credit determination and state law. Minimum loan amounts vary by state. Avant branded credit products are issued by WebBank, member FDIC.

    Best for Really Bad Credit – OppLoans

    Bad credit? No problem. OppLoans gives opportunities for even the worse credit borrowers to secure funding for immediate needs.

    APR Range
    99%–199%
    Term
    Up to 3 years
    Loan Amount
    $500–$4k
    SimpleScore
    2.8 / 5.0
    close
    SimpleScore OppLoans 2.8
    Rates 2
    Loan Size 1
    Terms 3
    Support 5
    Fees 3

    OppLoans offers installment loans of amounts between $500 and $4,000 at terms of up to 36 months.The APRs are quite high, at 99% to 199% APR.

    Another disadvantage is that OppLoans may not be offered in your state. As of September 2020, OppLoans installment loans were only offered in 13 states: Alabama, Delaware, Georgia, Idaho, Illinois, Mississippi, Missouri, Nevada, New Mexico, South Carolina, Texas, Utah and Wisconsin.

    Read our full OppLoans installment loans review.

    Unsecured and secured loans vs. installment loans

    Installment loans may be both unsecured and secured. With unsecured installment loans, there’s no collateral required. You get your loan terms and the lump sum of money you’re borrowing and agree to make installment payments that include payment for both the principal and interest you owe on a set schedule.

    With secured installment loans, you’ll have to put up collateral to get the loan. This means if you miss your payments or fail to pay off the loan completely, the lender can take possession of the collateral you offered, like your car or home.

    Generally, the better your credit score is, the more likely you’re able to get an unsecured loan. If you have no credit or poor credit, you may find you’re more frequently eligible for secured loans compared to unsecured loans.

    [ Read: Emergency Loans for the Unemployed ]

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Nicki Escudero

    Contributing Writer

    Nicki Escudero is a freelance writer and journalist with more than 18 years of experience in the publishing industry, writing for international publications such as USA Today, Entrepreneur, Marketing Land, American Art Collector magazine and the Arizona Republic. She is passionate about helping readers discover helpful tips that lead to happier, healthier lives. A former Australian expat, Nicki has a passion for world travel and loves to learn about new cultures.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Finance Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in insurance, personal finance, and loans. Previously, she wrote and edited for Interest.com, PersonalLoans.org, Ballantyne Magazine, Thread Magazine, The Post, ACRN, The New Political, Columbus Alive and the Institute for International Journalism.