What is the difference between an installment loan and a personal loan? This question is about Personal Loans

What is the difference between an installment loan and a personal loan?

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This question is about Personal Loans

Grace Enfield, Content Writer

@grace_enfield • 05/03/22 This answer was first published on 05/03/22. 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.

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The difference between an installment loan and a personal loan is that an installment loan can be any type of loan paid off in regular intervals over time, while a personal loan is just one example of an installment loan. All personal loans are installment loans, as are car loans, mortgages and home equity loans.

Types of Installment Loans

To learn more, check out WalletHub’s editors’ picks for the best installment loans and the best personal loans. Then, you can estimate your rates with our free pre-qualification tool.

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Why are installment loans bad?

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.

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Which is better, a payday loan or an installment loan?

An installment loan is better than a payday loan because installment loans have much lower fees, longer repayment periods, and larger loan amounts, and they can improve your credit score over time. Payday loans are predatory and often have fees equivalent to an APR of 400%+, so they should be avoided.… read full answer

For your convenience, below is a comparison of payday loans and installment loans.

Payday Loans vs. Installment Loans

Category	Payday Loans	Installment Loans
Loan Amounts	$500 or less usually	$250 - $100,000+
APRs	400%+ (charged as fees)	5.99% - 428%
Fees	Fees often equivalent to an APR of 400%+	0% - 8% origination fee Late fee Closing fee (mortgages)
Repayment Periods	2 - 4 weeks	3 months - 30 years
Credit Score Requirement	None	580+ (none in some cases)
Effect on Credit Score	Payments usually aren’t reported to credit bureaus	Helps credit if payments are made on time Hurts credit if payments aren’t made on time
Where to Get One	Payday lenders, either in-person or online	Banks, credit unions, online lenders

If you think an installment loan is right for you, check out WalletHub’s picks for the best installment loans. Then, you can estimate your potential rates with our free pre-qualification tool.

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Is an installment loan a good idea?

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