Loans that are repaid in equal monthly payments with a fixed interest rate are called “installment loans.” Installment loans are great for paying off debts in manageable chunks with a fixed interest rate. This makes them a handy tool for anyone trying to get their finances in order.
There are many types of installment loans, but one of the most common is a personal loan. These loans can be used for a variety of purposes, and they often come with no credit check.
What is an installment loan?
Different types of loans serve different purposes. An Installment loan is a type of loan in which an individual borrows a fixed amount of money, to be paid back over time with interest. The borrower agrees to make monthly payments, typically with a fixed interest rate, until the entire loan is repaid. This type of loan is useful for people who need to finance a large purchase or consolidate multiple debts into one monthly payment.
Installment loans are a great way to finance a large purchase without having to worry about variable interest rates or monthly payments. With an installment loan, you make fixed monthly payments towards the loan balance, meaning you can budget more easily and avoid any surprises.
Types of installment loans
There are many different types of Installment Loans, each with its features, loan purposes, and average interest rates. But they all operate similarly.
Personal loans
Loans come in many different forms, but personal loans are those that are provided by lenders to be repaid in monthly installments over time. These loans usually have fixed interest rates, making them predictable and easy to budget for. You can find personal loans from online lenders, private lenders, and credit unions.
A personal loan can provide you with a lump sum of cash to help fund various needs. With fixed repayment terms and competitive rates, a personal loan can be a great option to consider when you need extra financial assistance.
Personal loans typically have repayment terms of 24 to 60 months, but some can extend up to 72 months. However, shorter terms may be available depending on lenders.
| Pros | Cons |
|---|---|
| Fixed interest rate | Interest rates may be higher |
| Fixed monthly payments | Origination fees and prepayment penalties |
| Lump sum payment | Eligibility requirements |
| Money can be used for various purposes | Higher payments than credit cards |
No-credit-check loans
Payday loans are a type of loan that does not require a credit check before lending money. This can be helpful for people who are in an emergency or do not have another source of credit. The amount of a typical payday loan is smaller than a personal loan, often limited to around $500.
Short-term loans that come at a high cost are often called “payday loans.” Your credit score is not factored into the decision to approve this type of loan because your paycheck serves as security against the amount borrowed.
You may be able to get a payday loan by writing a postdated check for the amount you want to borrow, plus any fees. The lender would then hold the check until your next payday, at which point they would cash it.
You may be considering taking out an online loan, which would allow the lending company to take the funds from your bank account on your next payday.
| Pros | Con |
|---|---|
| No credit check | High-interest rates |
| Rapid approval timeline | Short repayment timeline |
| Funds provided quickly | Fees |
| No collateral required | Limited loan amount |
Mortgages
Loans that are paid back in installments are common, and one type is a mortgage. Homeowners usually pay mortgages back over 15 or 30 years with set interest rates. Because a mortgage is supported by something of value that the borrower owns, like a house or condo, the interest rates are often lower.
| Pros | Cons |
|---|---|
| Fixed interest rate | Long repayment commitment |
| Fixed monthly payment | Can be harder to qualify |
| Long repayment timeline | If you fail to make payments, the home can be foreclosed upon |
| Lower interest rates | When including interest over 15 to 30 years, the overall cost is significant |
Auto loans
are a popular form of installment loan. With this type of loan, consumers typically make a down payment on the vehicle or apply the trade-in value of their existing vehicle toward the purchase price balance. The remaining balance is then financed through an auto loan, with monthly payments made to the lender until the loan is paid in full.
| Pros | Con |
|---|---|
| You don’t have to pay the full vehicle cost upfront | A good credit score is required for the best interest rates |
| Fixed monthly payment amount | If you default, the vehicle can be repossessed |
| The loan helps to build your credit profile | The car depreciates over the life of the loan |
Student loans
Student loans come in two main varieties: private and federal. Both of these types of loans are installment loans, which means they are repaid in fixed monthly payments. The most popular type of student loan is the federal student loan, which is available to any student who needs one. Federal student loans have no minimum credit score requirements, and except for the Direct PLUS Loans for parents, graduate students, and professional students, no credit check is required.
There are many benefits to taking out federal student loans, one of which is the standardized interest rates. This means that every borrower pays the same rate, rather than having rates fluctuate based on individual circumstances. In addition, the interest rates for federal student loans are fixed, so you will not have to worry about them increasing over time.
Most private student loans do not offer the same repayment benefits as federal loan programs. These benefits can include loan forgiveness programs, income-driven repayment plans, forbearance, and deferment options. By comparison, federal student loans provide more flexible and affordable repayment terms.
| Pros | Cons |
|---|---|
| Federal student loans are available to any student who need one | Caps on how much you can borrow |
| No minimum credit score for federal student loans and no credit check unless you’re applying for a Direct PLUS loan | Repayment can take anywhere from 10 to 30 years |
| Standardized and fixed interest rate | Long-term repayment commitment |
| Forgiveness and deferment programs are available | The interest could amount to tens of thousands of dollars over the life of the loan |
Buy now, pay later loans
Payday loans are a type of short-term lending where you can borrow money now and pay it back later, usually in installments. These loans are often used to cover unexpected expenses or bridge the gap between paychecks. Interest rates on payday loans can be high, so it’s important to understand the terms before borrowing.
There are many services out there that can make your life more convenient, but they can also lead to overspending and accumulating debt. It can be easy to get caught up in the moment and spend more than you can afford when you’re using one of these services. They often create the illusion that products or purchases are less expensive than they are.
| Pros | Cons |
|---|---|
| Interest-free payments | The temptation to spend more than you can afford or make purchases that you don’t need |
| Makes expensive purchases more manageable | The illusion that purchases are less expensive |
| Easy to get approved | Easy to get into debt |
| Does not impact credit score in most cases | A down payment may be required at checkout |
Pros and cons of installment loans
Although installment loans may have some attractive benefits, it is important to be aware of potential disadvantages as well. Before taking out an installment loan, be sure to consider all of your options and make a decision that is right for you.
Pros of installment loans
Some advantages of Installment loans are:
- Consistent monthly payments: Making the same payment each month for your loan makes it easier to manage your budget and pay bills on time. This way, you can avoid late fees and keep your finances in good shape.
- Credit score boost: A good payment history on an installment loan can help improve your credit score. Paying on time and in full each month will show creditors that you’re a responsible borrower, which can lead to better terms and rates in the future.
- Refinancing opportunities: Refinancing your loan can be a great way to reduce your monthly payments or shorten the length of your loan. Interest rates fluctuate, so it’s always a good idea to keep an eye on them.
Cons of installment loans
There are a few things to keep in mind before taking out an installment loan. Here are some of the drawbacks to consider:
- Fixed payment: While installment loans do deposit funds in a lump sum, you may be able to increase the amount borrowed depending on the lender and your financial situation. This can be helpful in the event of a new financial hurdle or emergency.
- Potentially long payment schedule: When taking out an Installment loan, it is crucial to make sure that you will be able to afford the monthly payments for the duration of the entire loan agreement. Conversely, should you want to pay off the loan earlier than planned, be aware of any prepayment penalties your lender might charge.
- May be expensive for poor credit: Your credit score plays a big role in determining both whether you’ll be approved for an installment loan and what interest rate you’ll receive. Those with lower scores may be denied a loan outright or offered rates that make monthly payments more expensive.
- Potential fees: As interest rates go down, you may be able to get a new personal loan at a lower rate. However, this may come with another origination fee.
Should you get an installment loan?
Before you take out an installment loan, it’s important to understand both the pros and cons. For instance, an installment loan can help you refinance high-interest debt, which might be a good idea. On the other hand, a fixed monthly payment may be a better option than using a credit card or line of credit. Carefully weigh your options before making a decision.
Bad credit can make it difficult to qualify for a loan on your own. In these cases, finding a cosigner with good credit may help you get approved for a loan with a lower interest rate. Another option, depending on your needs, is to take out an installment loan.
Taking out an installment loan can be a great way to finance a large purchase, but it’s important to make sure you can afford the monthly payments. Defaulting on a loan can have a major negative impact on your credit score, making it difficult to get approved for future loans.
Where to get an installment loan
There are a few different places you can get an Installment Loan, like through a bank, credit union, or online lender. But each one comes with its benefits and drawbacks that you should think about before making your decision. For example, banks are usually more accessible than credit unions since you don’t need to be a member to get loan products from them. However, they typically have stricter lending criteria compared to other places.
When it comes to getting a loan, you may be able to get a more competitive rate from a credit union or online lender. This is because they typically have lower overhead costs. Additionally, online lenders usually have a more streamlined application process, meaning you can get approved faster and receive funding sooner. However, you won’t be able to visit a branch or speak to someone face-to-face like you would with a bank or credit union.
It’s great that many lenders offer online applications for mortgages, car loans, and personal loans. Personal loan approvals usually come within a few days, while car loans and mortgages may require a more in-depth look at your credit history and credit score.
There are a few things to consider before seeking out a loan. Checking rates from multiple lenders is always a good idea. Many online lenders offer prequalification, which gives you a quick decision about whether or not you’d qualify for a loan with that lender. Prequalification uses a soft credit check, so your credit score won’t be impacted.
Alternatives to installment loans
There are many ways to access the cash you need to make large purchases or pay off debt. Here are some other options besides taking out an Installment loan.
Personal lines of credit
Credit lines that are unsecured and have variable interest rates are called personal line of credit (PLOC) accounts. They work similarly to credit cards in that you are approved for borrowing up to an amount, and then can access the funds as needed. Your repayment is based on how much of the credit you have used.
There is no need to provide collateral, such as your home, when applying for a PLOC. However, PLOCs are usually only available to consumers with excellent credit histories, often those who have a credit score of 680 or more.
Credit-builder loans
Credit-builder loans are a great way for people with no credit history or poor credit to build up their credit scores. You can borrow a specific amount of money from a lender and make monthly payments toward the borrowed amount.
In a credit-builder loan, you don’t get the cash upfront. Instead, the lender puts the loan amount into a savings account that you can’t touch. You make fixed monthly payments for a set amount of time, and once you’ve paid off the loan, the lender gives you the money.
A credit-builder loan can help you improve your credit score by reporting your on-time payments to credit bureaus. Even though you won’t have access to cash during this period, you can still benefit from this type of loan.
Payday alternative loans
As a credit union member, you have the option to take out a payday alternative loan (PAL). With these loans, you can borrow anywhere from $200 to $1,000 for one to six months. This is a great option for those who have been members of the credit union for at least one month and need some extra cash.
Bottom line
There are many reasons why people may choose to take out an Installment Loan. Perhaps they need to cover a large expense, or they have encountered an unexpected financial emergency. Maybe they want to consolidate high-interest debt or purchase a car or home. Whatever the reason, it is important to understand how different types of Installment Loans work before you apply for one. It is also advisable to shop around with different lenders to find a loan product with favorable terms that meets your financial situation.
