What Is an Installment Loan?

An example of an installment loan is a personal loan. Personal loans are typically unsecured, which means you won't have to put up anything as collateral to get the loan, and they can be used for almost anything, such as debt consolidation, home improvements and big purchases.

With a personal loan, the lender will give you a lump sum of money that you will need to repay, plus interest, over 12 - 84 months. On-time payments will help improve your credit score since the lender will report positive information to the credit bureaus.

There are other types of installment loans that you should know about, too. You can see more examples below.

6 Installment Loan Examples

• Personal loans
• Mortgages
• Auto loans
• Credit-builder loans
• Home equity loans
• Student loans

If you think a personal loan is right for you, check out WalletHub's picks for the best personal loans. Then, you can use our free pre-qualification tool to estimate your potential rates.

Installment loans give you a lump sum of money through a bank transfer or paper check and then require you to make payments at regular intervals until the amount borrowed is repaid in full, with interest. Some installment loans are secured by collateral, while others are not.

There are various types of installment loans, including personal loans, mortgages, home equity loans and student loans. Each loan type has different APRs, term lengths, loan amounts and fees. The requirements to get approved for a loan will vary by lender, as well.

How Installment Loans Work

1. You apply for the loan, and the lender evaluates your creditworthiness. You have to give the lender some basic information in the loan application, such as your age, date of birth, address, income, employment history and more.
2. The lender gives you a lump sum of money, if you are approved. Once you get approved, your lender with either send an electronic transfer to your bank account or a paper check with the full amount of your loan.
3. You use the money to pay for an expense. With personal loans, you can use the money for almost any expense. If you have a loan for a specific purpose, such as a car loan or a mortgage, your options are more limited.
4. You make loan payments at regular intervals. After you receive the funds, you'll need to make regular payments to pay down what you owe. This is usually done monthly.
5. Your lender will report to credit bureaus. If you make all of your payments on time, your lender should report positive information to the credit bureaus on a monthly basis. This information will improve your credit score. Naturally, not paying on time will have the opposite effect.
6. The account will be closed once you pay off the loan. Once you pay off the loan, the lender will permanently close the loan account. You will not need to make any more payments to them after this happens.  

To see which lenders may approve you and what rates you may qualify for, use the free pre-qualification tool on WalletHub. This tool won't hurt your credit score.

Installment loans can hurt your credit score if you do not pay on time, since the lender will report negative information to the credit bureaus. The hard inquiry into your credit history and the increase to your overall debt load when you first get an installment loan may also hurt your credit score initially.

On the other hand, if you make the monthly payments on time and stay current on the loan, the lender will report positive information to the credit bureaus. This will increase your credit score.

To see how much an installment loan could affect your credit score, check out the free credit score simulator on WalletHub. You can also see daily credit score updates if you sign up for a free WalletHub account.

An installment loan is good to have because it can help you build credit and it can be used for many different things, like home improvements or buying a car. Installment loans also can help you spread out the cost of a large expense over time, with repayment periods as long as 30 years depending on the type of loan you get.

Why an Installment Loan is Good

Can help you build credit

If you make your payments on time, the lender will report positive information to the credit bureaus. This means your credit score will increase, assuming negative information from other sources isn't added. Additionally, since your credit score is partially based on the types of accounts you own, your score will get a boost if you have a healthy mix of installment and revolving credit.

To see how an installment loan might affect your credit score, check out the free credit score simulator on WalletHub.

Has many purposes

There are a number of ways you can use an installment loan, such as financing home improvements, consolidating debt or paying for expensive purchases over time. Some installment loans have a specific purpose, though, like car loans only being used to finance the purchase of a new or used car.  

Offers long repayment periods

Depending on the type of installment loan, you could get a repayment period lasting years or even decades. This gives you plenty of time to repay what you owe.

Can be paid off early

Most lenders will let you pay off your installment loan early, often without penalty. This could save you money on interest.

Has predictable payments

Installment loan payments are typically made in equal amounts on the same day every month. This makes it easy to plan for these payments in your monthly budget.

Now that you know why an installment loan is good, you can start comparing your options. To see the top-ranked offers, check out WalletHub's picks for the best installment loans. You can also estimate your personal installment loan rates with our free pre-qualification tool.

Two of the most common types of installment loans are personal loans and mortgages. Both personal loans and mortgages offer lump sums of money that borrowers get up front and then have to repay in equal installments over time, usually monthly.

2 Common Types of Installment Loans

Personal loans

Personal loans are installment loans that can be used for nearly anything. They typically range from $1,000 to $100,000, with payoff periods of 12 to 84+ months, depending on the lender. Personal loan APRs are usually between 4% and 36%. The credit score requirement for a personal loan is typically between 580 and 700. You can see if you are pre-qualified without hurting your credit score using WalletHub's free pre-qualification tool.

Mortgages

Mortgage loans allow people to buy a house without having enough money to pay for it up front. The borrower can live in the house before they've paid the full price for it, but the financial institution that issued the loan owns the title to the home until the mortgage is fully paid off. Mortgages are secured by the home, so if the borrower doesn't pay off the loan, they may lose the home.

Final Thoughts

Other types of installment loans include student loans, car loans and credit-builder loans. Ultimately, you need to choose an installment loan based on what you can qualify for, your financial standing and what you need the loan for.

If you're ready to start comparing loan options, visit WalletHub's best installment loans page.

The main types of installment loans are personal loans, mortgages, home equity loans, car loans, student loans and credit-builder loans. Each type of installment loan has different requirements, APRs, fees, payoff periods, and amounts of funding. Some are also used for specific purposes.

Types of Installment Loans

Personal loans

Personal loans are installment loans that can be used for nearly anything. They typically range from $1,000 to $100,000, with payoff periods of 12 to 84+ months, depending on the lender. Personal loan APRs are usually between 4% and 36%.

The credit score requirement for a personal loan is usually between 585 and 700. You can see if you are pre-qualified without hurting your credit score using WalletHub's free pre-qualification tool.

Mortgages

Mortgages, or home loans, allow people to finance a house without having all of the money up front. The issuer of the mortgage continues to partially own the house until the borrower pays the mortgage off fully. If you can't pay the mortgage off, you risk foreclosure.

Mortgages typically last for 10 to 30 years, and the average APR is around 2% to 4%. Mortgages usually require a credit score of around 620 if they're private or 580 if they're government-insured.

Home equity loans

Home equity loans allow people to borrow a portion of the difference between the value of their home and the amount left to pay on the mortgage. The loan is secured by the house, however, so there's a risk of foreclosure if you can't pay what you owe.

Home equity loans usually last for 5 to 30 years, have APRs of around 2% to 6%, and tend to require a credit score of at least 680.

Car loans

Auto loans help you finance the purchase of a new or used car. They usually last anywhere from 24 to 72 months and have APRs of around 2% to 6%. While there isn't a minimum credit score to get an auto loan, the higher your score is, the better your terms are likely to be.

The big downside to auto loans is that since they are usually secured by the car, your vehicle could get repossessed if you can't pay back what you owe. There are also loans for other types of vehicles, such as motorcycles and boats, that function the same way.

Student loans

Student loans are loans for the purpose of paying for education and related costs like housing and food. Some are federally backed, while others are private. Federal student loans tend to have interest rates around 2% to 5%, while private loans have rates around 1% to 12%.

Student loans usually last around 10 years, but some can last for up to 30 years. You can use WalletHub's student loan calculator to help you calculate how much your monthly and total payments will be.

Credit-builder loans

Credit-builder loans are probably the most unique type of installment loan. They work the opposite way of a normal loan. You make monthly payments to a lender, which puts the money (minus the interest charged) in a savings account. Once you have finished your required payments, you get access to the money in the account. The purpose of a credit-builder loan is to have positive payment information reported to the credit bureaus each month and to establish or improve your credit history.

Ultimately, choosing which type of loan to get is up to you depending on what you qualify for, what your financial standing is and what you need the loan for. You can visit WalletHub's best installment loans page to see the top ranked offers.

It is a loan that comes with a set number of planned payments. The installments are fixed or variable, depending upon the interest rates. For an instance, a mortgage loan can be categorized as an installment loan. 

It benefits all the parties involved in a transaction, including the consumer, who can afford big-ticket items; seller can increase sales volume, and the creditor can charge higher interest rate against these loans. 

Some of the easiest installment loans to get are personal loans with no credit check. These loans are meant for people with bad credit or no credit, can be used in any situation, and have the potential to be rather expensive.

Comparing personal installment loans is the key to finding a loan with decent terms that is easy to get approved for. But there aren't too many options with no credit check to choose from, unfortunately. The easiest personal installment loans to get are from 60MonthLoans. The company does not do a hard inquiry into your credit history when you apply, and it offers loan amounts of $2,600 - $10,000, APRs of 19% - 35.83% and repayment periods of 24-60 months.

Easiest Installment Loans to Get

To see more installment loan offers, check out WalletHub's picks for the best installment loans and estimate your rates with our free pre-qualification tool.

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.

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

Payday Loans vs. Installment Loans

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.

The best long-term installment loans are from LightStream because the company offers repayment periods of 24 - 84 months. LightStream also offers loan amounts of $5,000 - $100,000, APRs of 7.99% - 25.99% and no origination fee.

Best Long-Term Installment Loans

*According to multiple third-party sources.

You should also consider alternatives to long-term installment loans when doing your research. Asking a family member or friend for a loan or using a credit card to finance your expense may work better in your situation.

However, if an installment loan is your best bet, you can find more options among our editors'picks for the best installment loans overall. You can also estimate your approval odds and rates from multiple lenders with the free pre-qualification tool on WalletHub.