Are installment loans worth it?

Question

Some people think installment loans are bad because they only allow you to borrow once, they sometimes require collateral and they often charge fees. Installment loans can also hurt your credit score if the lender does a hard inquiry into your credit history when you apply and if you don't make your monthly payments on time.... read full answer

Why Some People Think Installment Loans Are Bad

Installment loans only allow you to borrow one time. Unlike credit cards or other lines of credit, you can only borrow money from the lender in one lump sum. An installment loan may not be right for you if you think you'll need to borrow more than once.

Installment loans may require collateral. A few types of installment loans will require you to put up something as collateral, like your house or your car. If you don't repay the loan, you risk losing this collateral.

Installment loans may charge fees. Some examples of fees you may be subject to include personal loan origination fees and mortgage closing fees.

Installment loans may hurt your credit score. When you apply for an installment loan, the lender may do a hard pull of your credit history, which will drop your score by about 5 to 10 points. Also, if you don't make your monthly payments on time, your credit score may suffer a lot more.

Although these disadvantages may seem daunting, installment loans should help your financial standing overall if managed responsibly. You just need to make sure you make your payments on time and follow the terms of your loan.

Installment loans also help make it possible to pay off big purchases over time, and they cover a wide range of needs. They can be paid off early, too -usually without penalty.

To read more about these loans, check out WalletHub's best installment loans page.

show less

Answer 1 · 2022-12-08 14:34:30

see this user

Grace Enfield, Content Writer

@grace_enfield • 12/08/22 This answer was first published on 02/17/22 and it was last updated on 12/08/22.For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.

Permalink Report Abuse

Installment loans are worth it if the APRs, payoff periods and loan amounts are better than what your other options offer. Additionally, you should consider getting an installment loan only if you know you can pay it off on time and if your expense is necessary.

When Installment Loans Are Worth It

If other options aren't better

If you have good or excellent credit, you may be able to get a better APR on an installment loan than a credit card. But plenty of credit cards offer 0% introductory APRs, so if you need to make a relatively small purchase that you can pay off before the regular APR takes effect, a credit card may be better for you.

You may also be able to get a loan from a friend or family member. They could offer you more flexible terms than a major lender would.

If you know you can pay it off

Installment loans can take anywhere from a few months to 30 years to pay off, depending on the type of installment loan. You need to make sure that you can afford your monthly loan payments, along with other monthly expenses.

If you choose to get a personal loan, you can see how much your monthly payments will be with the free personal loan calculator on WalletHub.

If the expense is necessary

You may be able to use an installment loan to pay for things like a wedding or vacation. But it's better to use money you've already saved to pay for luxuries.

Installment loans can also be used for many necessary purposes, from financing home improvements to consolidating debt to paying medical bills. Some installment loans have a specific purpose, too. For example, you can only use an auto loan to finance the purchase of a new or used car.

Bottom Line

In the end, an installment loan is worth it if the interest rate and fees are better than the alternatives and if you can afford to make monthly payments. To see some of the top-ranked offers, check out WalletHub's picks for the best installment loans. Then, you can estimate your rates from multiple lenders with the free pre-qualification tool on WalletHub.

Account Status	Length of Time on Credit Report
Open account	As long as the account is open
Account closed due to nonpayment	Up to 7 years
Account closed in good standing	Up to 10 years

Are installment loans worth it?

Grace Enfield, Content Writer

When Installment Loans Are Worth It

If other options aren't better

If you know you can pay it off

If the expense is necessary

Bottom Line

People also ask

Why are installment loans bad?

Does installment loan hurt your credit?

How long do installment loans stay on your credit report?

Join WalletHub