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If you have bad-to-fair credit and need cash, an installment loan can help. Installment loans typically have repayment terms from six months to five years – and you repay them in monthly installments.
While their interest rates can be high, they generally offer lower interest rates than payday loans. In addition, most installment loan lenders will report your payments to credit bureaus to help you build your credit score.
Before taking out an installment loan, however, be sure to know how much it will cost you in the long run. If your loan has a very high rate, it could be a significant financial burden for years to come.
On this page:
Best Online Installment Loans
The following companies are our partners that have been vetted extensively by our Editorial Team.
Here are our picks for the best installment loan lenders.
|Company||Best For||Minimum Credit Score|
|LightStream||Best for excellent credit||660|
|Upgrade||Best for loans under $5,000||620|
|Upstart||Best for bad credit||580|
3.49% – 19.99%*
$5,000 – $100,000
LightStream ranks as our best overall personal loan lender with low rates, no fees, and a Rate Beat program in which they will beat any rate a competitor offers by 0.10 percentage points.** If you have a credit score of 660 or above, LightStream is a great option.
- Credit score category: Excellent, good
- Minimum credit score: 660
- Soft credit pull to check rates: Not available
- Deposit time: As soon as the same day
- Origination fee: 0%
- Late fee: None
- Discounts: 0.50% interest rate reduction for enrolling in autopay
- Repayment terms: 24 – 144 months***
Best for loans under $5,000
7.99% – 35.97%
$1,000 – $35,000
Upgrade is a great option for borrowers with bad or fair credit, as well as those that need smaller loans. You can check rates without affecting your credit score and eligibility is based more on free cash flow as compared to other lenders.
- Credit score category: Fair, bad
- Minimum credit score: 620
- Soft credit pull to check rates: Yes
- Deposit time: As soon as the next day
- Origination fee: 2.9% – 8%
- Late fee: $10
- Repayment terms: 36 or 60 months
Best for bad credit
8.41% – 35.99%1
$1,000 – $50,0002
Upstart is an online lending platform that partners with banks to provide personal loans that can be used for almost anything. Upstart’s lending model considers education, employment, and many other variables when determining eligibility.3 This model leads to 27% more approvals and 16% lower rates than traditional models.4
- Credit score category: Fair, bad
- Soft credit pull to check rates: Yes
- Deposit time: As fast as one business day
- Origination fee: 0% – 8%
- Late fee: $15 or 5% of payment
- Repayment terms: 36 or 60 months
How to Find the Best Installment Loans
What Should You Look For in Installment Loans?
If you want to take out the best installment loan, you need to know what to look for.
Reasonable Interest Rates
First, look for a loan with a reasonable interest rate. Since installment loans vary significantly in terms of APRs, this will have a huge impact on the costs of your loan.
This influences your monthly payment and how much interest you’ll pay over the life of your loan. You can potentially save thousands of dollars depending on the term length and amount of your loan so this is especially important.
A Term Length Option That Fits Your Budget
Next, look for a lender that provides you with several term length options. If you only want to borrow money for one year and a loan will only let you borrow it for four years, then that’s probably not a good match for you. The more term options that a lender has, the better you can customize the loan to your needs.
No or Low Fees
Finally, the last thing that you should look at are the fees that the lender is charging on the loan. If you can find an installment loan with no fees that is the best bet. Most reputable lenders won’t charge you prepayment fees, although many do still charge origination fees. Make sure to read the fine print on your loan before borrowing so you’re aware of all fees.
Shopping Around for Installment Loans is Important
Like with any purchase, you benefit from shopping around. This is especially true with installment loans when things like the interest rates, term lengths, and fees will change significantly depending on the lender. And, since you’re already on this page, you are already at a great starting point in terms of comparing the potential loans you could apply for.
Luckily, many online loan companies have all of their information online and allow you to fill out a quick application that pre-qualifies you for a loan without performing a hard credit check. That means that you’ll be able to get quotes from a bunch of different installment loan companies before deciding which is right for you.
How Do Installment Loans Vary From Lender-to-Lender?
Installment loans vary significantly from one company to the next. In fact, payday loans and installment loans are two kinds of credit that have some of the widest variations in terms of interest rates. You’ll also see differences in things like term lengths, types of interest rates, and fees.
Another important variation is how the company makes its lending decisions. Some installment loan lenders don’t require a credit check whereas others look at your credit. Each company puts different amounts of weight on your credit score, so just because one company has turned you down for an installment loan doesn’t mean other companies will.
Installment Loan Application Process & Eligibility Requirements
Installment Loan Application Process
When it comes to getting an installment loan, there are a number of different ways to apply. You can apply online, by phone, or in-person at a lender that provides installment loans on-site. In addition, some installment loan companies lend directly to consumers while others connect you with a third party lender or investor.
Applying for an installment loan is a relatively easy process and in order to do so, you usually just need your personal identification information, information about your income, and information about your checking account. If the installment loan company wants to check your credit score, you may also need your SSN number.
Income and credit score requirements vary widely from one company to another.
Some companies don’t consider your credit score at all in determining eligibility while others solely base decisions on it. Most companies, though, will partly consider your credit but look at other factors as well – like income.
When it comes to income, most lenders simply say that they will lend to you if they decide you make sufficient income in order to repay the loan. Some have specific income requirements that might require you to make a certain amount of money, but many lenders don’t. This is because if you are taking out a smaller loan, you won’t need as much income in order to successfully repay it.
Another big factor in how lenders determine eligibility is your debt-to-income ratio. This ratio – which looks at your monthly debt payments divided by your monthly income – can give lenders an idea of how much of your income is already going towards debt. Though you might have a very high income, if the majority of it is already going towards debt payments, you have less free money left to repay your new installment loan.
Installment Loan Uses
The reasons why someone might use an installment loan vary widely based on the financial needs of the borrower.
They are used to pay for things like urgent medical bills, auto repairs, last-minute travel to see sick family members, tickets to once-in-a-lifetime concerts, or any other type of expense that is urgent or necessary. Life happens sometimes and if you don’t have an emergency fund to absorb the costs, then you often resort to things like loans or credit cards.
People who typically use installment loans might do so if they don’t have access to another type of loan with lower interest rates or a credit card. They need money quickly, but the fact that they have bad credit or that they don’t have a credit file means that they’re unlikely to qualify for another type of loan.
Borrowers also might want to take out a loan in order to build or rehabilitate their credit and cannot qualify for a credit card or loan. Since installment loan lenders consider criteria other than just your credit score when making lending decisions, that might mean that such people are more likely to qualify for this type of loan.
People who borrow installment loans might also be the same people who might turn to payday loans. However, installment loans are a step up from payday loans since they allow you to borrow more money, repay the loan over a longer period of time, and get lower interest rates.
Installment Loan Repayment
You repay your installment loan the way you would like most other loans. When you take out an installment loan, you’re on the hook for a monthly payment. This payment is generally the same throughout your repayment schedule, and part of it goes toward the interest you owe and another part goes toward the principal.
Generally, installment loan providers will either offer or insist upon autopay, where the money automatically comes out of your bank account. This gives them more certainty that you will actually repay them.
Repayment terms tend to be longer than on payday loans, which typically will give you two weeks to 90 days to repay. Installment loan lenders will give usually you anywhere from six months to five years to repay your loan. This is a lot shorter term length than you might qualify for with a personal loan, in which term lengths can be over 10 years.
The longer your term length, the less your monthly payments will be, but the more you’ll pay over the life of your loan in interest. Similarly, a shorter term length will mean that you’ll pay more toward your loan on a monthly basis, but that you’ll pay less interest overall. It is important to know how choosing a short-term or long-term repayment period will affect your monthly payment.
If you are struggling with repayment, rather than avoiding taking action, be sure to get in contact with your lender’s customer service to see what options you have. They may allow you to temporarily defer payments until you get back on your feet.
How Much Do Installment Loans Cost?
It’s important to note that not all installment loans are created equal—some are much more expensive than others. And many state laws – but not all of them – place a cap on the rates for installment loans. For example, for a $2,000 closed-end installment loan, 32 states and the District of Columbia cap APRs from 17% to 36%. Meanwhile, five states have no cap, with some allowing installment loans to charge as much as several hundred percent APR.
How much you’ll pay will depend on the loan company you borrow from. However, they do tend to be cheaper than payday loans, which the Consumer Financial Protection Bureau found carried an average APR of 400%.
Some installment loans have origination fees anywhere from 1 percent to 6 percent. Others will charge prepayment fees of as much as 5 percent. Some fees are optional like insurance for your loan that will pay your loan in situations like if you lose your job, or get sick, or become disabled. Make sure to carefully read the loan agreement so that you know all the fees that will be charged on your loan.
What Are the Risks of Using an Installment Loan?
Because you’re borrowing money at a relatively high interest rate, the very first risk to consider is how difficult it might be to pay it back. Some people take out an installment loan because they are living paycheck-to-paycheck and desperately need the money for urgent expenses. But after they’re able to cover the expense, they still are struggling to make ends meet and then they also have this new loan payment.
That being said, know that installment loans are not a long-term financial solution and should only be used to meet short-term financial needs when you know you can afford repayment.
When people get behind on their installment loan payments. This can lead to all sorts of additional penalties and fees on the loan making the payments even more expensive.
In this case, the borrower could end up struggling to ever pay the loan back. The financial institution could then take the borrower to court in order to try to get a judgment against them in order to seize assets or garnish wages. If you’re unable to pay, you could have to go through bankruptcy.
In addition, not paying your installment loan will damage your credit since your missed payments will be reported to credit bureaus. That will further damage your credit and make it more difficult to rebuild your credit score.
Recap of the Best Installment Loans
Here is a recap of our picks for the best installment loans from our partners. Make sure to keep the credit score requirements for each company in mind before applying. If your credit score is lower than the minimum requirement, you should consider another option.
- Best for excellent credit: LightStream
- Minimum credit score: 660
- Best for loans under $5,000: Upgrade
- Minimum credit score: 620
- Best for bad credit: Upstart
- Minimum credit score: 580
*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
**LightStream will offer a rate .10 percentage points lower than the rate offered on any competing lender’s unsecured loan provided that you were approved for that lower rate (with the same loan terms offered by LightStream) no later than 2 p.m. Eastern time two business days prior to loan funding. The Rate Beat Program excludes secured or collateralized loan offers from any lender, and the competitive offer must be available to any customer with a similar credit profile. Terms are subject to change at any time.
If you believe you have been approved by another lender for a lower qualifying rate, contact LightStream customer service. We will work with you to determine your Rate Beat eligibility and obtain the necessary documentation.
***Payment example: Monthly payments for a $10,000 loan at 5.95% APR with a term of three years would result in 36 monthly payments of $303.99.
1The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 15% and 36 monthly payments of $33 per $1,000 borrowed. There is no down payment and no prepayment penalty. Average APR is calculated based on 3-year rates offered in the last 1 month. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
2Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Loans are not available in West Virginia or Iowa. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5100. The minimum loan amount in GA is $3,100.
3Although educational information is collected as part of Upstart’s rate check process, neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.
4As reported by the Consumer Financial Protection Bureau, based on an internal Upstart study which compares outcomes from Upstart’s underwriting and pricing model against outcomes from a hypothetical model that uses traditional application and credit file variables and does not employ machine learning (traditional lending model).
Author: Jeff Gitlen