Installment loans let you borrow a fixed sum of money altogether, and later repay it in regular monthly payments (called installments), within a set period. The scheduled payments recur until your loan is completely paid off. In a way, this works for most of us who don’t wish to spend large sums of money at once. Financially smart people, and even rich folks use them frequently.
Instead of paying for what they buy in full, they believe that larger purchases can be financed with installment loans. Since you’ll be paying only a portion of the amount at first, the remaining money can be invested. Over time, profits from your assets can naturally cover the monthly payments.
Personal loans, auto loans, mortgages, and student loans are different types of installment loans you can get, depending on the type of purchase you’re making. Usually, the repayment for these loans falls between a few months to over 30 years.
The payments are fixed, disclosed to you through a fine print or loan agreement before you agree to the terms. So, borrowers can budget and plan for their finances years in advance.
How do online installment loans work?
With online installment loans, you get money upfront. Since the repayment is flexible, you get to choose how much time you want for paying back the loan. For any loan amount, based on the interest rate, monthly payments are divided into equal portions throughout the loan term.
Though, keep in mind that the longer you take to repay, the more you’ll be paying towards interest, which is an unnecessary cost. As long as you’re making timely payments, you’re good. If payments are missed, you’ll need to pay additional fees or penalties a lender charges. When signing an agreement, understand these costs too.
Regarding the approval process, it is generally quick. Especially for online loans, consumers receive funds as soon as the same business day. The higher your credit score is, the lower interest rates you qualify for. Some lenders do cater to those with less-than-perfect scores.
What credit score is needed for an installment loan?
The credit score needed for an installment loan is subjective to the lender. Most banks and lenders prefer borrowers with a score of 690 or more. These individuals will quickly qualify for the loan, enjoy higher borrowing limits, and lower interest rates.
But, having a low credit score doesn’t mean you won’t be able to get an installment loan. It just means your options will be limited. Lenders do approve those with low scores but the interest rates are higher for them due to the presumed risk.
For example, people with credit scores of 720+ may get an average APR of 17.43 percent, while those with scores between 560 and 579 may qualify for an APR of 160.30 percent. Very few lenders drop credit score checks, and rely on other factors like your employment history, debt-to-income ratio, etc, to offer you lower rates.
Can I get an installment loan with bad credit?
According to Experian, only 22 percent of consumers have a FICO that is above 800. No doubt most of us are going to struggle with borrowing money at lower rates. Lenders get that. You’ll find so many offers online that are specifically for borrowers who have poor credit. And some of these lenders even give you lower APRs, in the range of 9.99 to 35.99 percent, for credit scores as low as 300. So, for those who are worried if you can get an installment loan at low interest rates—you can.
Document required for applying
The documentation process for most installment loans is minimal. You’ll need at least these basic documents for getting an installment loan online:
- Proof of income: Recent pay stubs, tax returns, or bank statements.
- Valid government-issued ID proof: Driver’s license, passport, or state-issued ID.
- Proof of address: Utility bills, lease agreements, or bank statements.
- Social Security Number is required in some states.
- Checking account details: Account number and routing number.
While these are the basic, common requirements, lender-specific documentation can still vary. Some lenders may need the purpose of loan, references, or a minimum credit score.
How to get an installment loan online?
It’s easy! Just follow these steps:
- Choose a lender: Find a reputable lender who offers online installment loans.
- Fill up an online application: Go to the lender’s website and submit the details for an online loan application. They’ll usually ask for your name, address, Social Security Number, employment details, banking information, etc.
- Receive a decision: You’ll usually receive an instant approval or rejection from the lender. If approved, they will offer you the terms you’ve qualified for based on your profile. So details like the interest rate, loan amount, and repayment period will be told.
- Sign & receive funds: The lender will send you loan documents electronically. You can read them carefully and sign the agreement to get the funds.
How long does it take to get approved?
Most lenders approve you instantly. You don’t need to keep waiting or wonder what will happen. Within minutes, you’re informed about an approval or rejection. And, the funds are deposited directly into your bank account on the same day. Sometimes, some technicalities may cause your funds to delay to the next business day but that is the maximum you can expect.
Are online installment loans safe?
Online installment loans can be safe (if you choose a reputable lender). It is important that you verify whether the lender is legitimate or not before borrowing a loan. You can easily do so by checking if the lender is licensed, and whether their customer reviews are great.
Look up on platforms like Reddit and Quora to learn about what people say about the lender or their services. This should give you an overall view, and sometimes helps you make the right financial decision.
If possible, don’t borrow from lenders who are asking for fees upfront, or payments before you’ve even received the funds. A few markers of good lenders are offering transparent loan terms, not pressuring you into making quick decisions, and charging reasonable interest rates.
Genuine lenders also provide accurate contact information on their website. Make sure that you’re comparing many different lenders and loan offers before choosing one. Moreover, read the fine print or loan agreement carefully before signing any documents, always.
Average interest rates & repayment terms
Usually, the interest rates for long-term loans range from 6.99-29.49 percent. Where you are on this spectrum is decided by your credit score. Repayment terms, however, are completely up to you. Commonly, you’re allowed to borrow an installment loan online for 2-7 years.
Longer repayment periods tend to have lower monthly payments, but overall more money that goes towards interest. You can calculate the monthly payment using this formula:
Can I pay off my installment loan early?
One thing about paying off your loan early is that you’ll save on the interest. Even if you don’t use that option, there is no harm in keeping it open, right? Oftentimes, people take installment loans with repayment scattered over several years. You never know when your financial situation may change. For example, you took the loan but now you’ve started earning more. You want to be able to clear all debts and save on the interest payments. The good news is, you can do that.
But, also understand that this is something a lender chooses. Different lenders offer varied terms related to the early repayment. Some charge prepayment penalties, while others don’t. Make sure to check what the terms are saying in the fine print for your loan. If you’ve already taken out a loan but now your credit score has improved, you can even refinance your debts at lower interest to pay down sooner and save on the interest.
Installment loan vs. payday loan
Installment loans are in every way better than taking payday loans online. Here’s why:
| Installment Loans | Payday Loans | |
| Loan Amount | Larger amounts, generally up to $100,000 | Smaller amounts, usually don’t exceed $500 in most states |
| Repayment Terms | Repayment spread over several months or years | Short-term; typically due within 2 to 4 weeks |
| Interest Rates & Fees | Lower interest rates and fees | Very high rates, APRs near 400% for a two-week loan |
| Credit Impact | Helps build credit if repayment is done on time (reported to credit bureaus) | Do not affect credit scores unless the borrower defaults on the loan (affect score negatively) |
How do I find a good lender online?
Now that you’ve understood the complete process of applying for installment loans online, we want to give you a trick to finding only good lenders. There are platforms like Best Rate Check, that allow you to connect with safe lenders online.
Instead of applying with lenders individually, you can try applying through these websites. Ours uses an advanced algorithm to filter out bad lenders, and connect you only to genuine ones who are charging lower interest rates. In just a single, short online application, you’ll be pre-approved with multiple lenders and then you can compare from the best offers.
Frequently Asked Questions
Yes. For receiving the funds from an online installment loan, you need to have an active checking account.
Credit checks are totally dependent on the lender. Some lenders, who offer bad credit loans, skip credit score checks and rely solely on your income, employment status, and debt situation. While others may need you to undergo a credit check for getting approved.
You can apply for multiple installment loans at once, but you need to showcase that you’re creditworthy. If your income can sufficiently handle the debts, and if the monthly payments of all debts combined cost you less than 30 percent of what you are earning every month, lenders will approve you confidently.
Yes. Each state imposes regulations on the interest rate and fees a lender can charge you for online installment loans. If a lender is not following the caps laid by the government, they’re liable to legal actions.
It depends on the lender’s terms and conditions. So whether you can cancel an installment loan after signing or not will also be mentioned in the documents you sign. Installment loans are flexible loans but it is still best to read the loan agreement carefully before signing.
You can compare installment loan lenders online through websites like Forbes Advisor, Lendedu, NerdWallet, TrustPilot, Better Business Bureau (BBB), etc.
Installment loans are different from a revolving line of credit, for example, credit cards. With installment loans you borrow once and that’s it. And with lines of credit, you can borrow, repay, and keep borrowing again up to the assigned credit limit.
Home improvement installment loans are unsecured personal loans that help homeowners make repairs and renovations in their house. This could be due to emergency expenses, or because they’re willing to sell the house.
Absolutely! You can use an installment loan for debt consolidation. In fact, this helps you pay off your debts at once, and repay the loan in small, manageable monthly installments. You’re simplifying your monthly payments, which makes it easier to budget. Also, you may be able to lower the total monthly interest you were paying by getting a new loan at lower rates.
Secured loans are backed by collateral, or an asset. Whereas, unsecured loans are based on your credit score and an arbitrary assumption that you’ll be able to repay the loan because you’ve done so in the past. Failing to make payments on your installment loan can result in losing the collateral if your loan is secured.
