Installment Loans Online, Instant Approval

Installment loans are one of the most prevalent products in consumer finance. Millions of consumers each year leverage some form of installment loan to finance life’s largest purchases: from cars, to homes, to vacations and more; you’d be hard pressed to find someone who doesn’t currently have some type of installment loan.

As a concept, Installment loans were created at the end of the 19th century, but consumers most commonly began paying in installments after the advent of the automobile. Previously just used just for large purchases, in the 21st century, with the increasing prevalence in “buy now, pay later” technology, consumers with decent credit can borrow in small installments on the shortest loan terms for just about anything: clothing, groceries, home goods and more.

What is online or installment loans?

Installment loans are a form of borrowing that enables an individual to access a lump sum of cash up front, and then repay the lender in smaller increments over a set period of time. Installment loan products are most commonly seen as mortgages, auto loans, personal loans, student loans, and more recently as “short term loans” (also known as “Buy now pay later”, or BNPL.) Installment loans are offered through both financial institutions and online lenders.

Although most lenders take applications and manage the loan approval and disbursement process digitally, online installment loans are offered by online lenders that operate exclusively via the internet, without a traditional brick and mortar footprint. Often, online lenders can offer faster approval and funding, and come with slightly better interest rates than their brick-and-mortar counterparts because they do not have to carry the overhead costs of physical locations.

Types of Installment Loans

Installment loans are a broad category of financial product. Technically, any type of loan repaid at a fixed interval is an installment loan, but there are two types of installment loans: secured and unsecured.

• Secured installment loans means collateral is needed to secure the debt.
• Unsecured installment loans need no form of collateral for the buyer to obtain funds.

Where many may get confused is that underneath the installment loan types (secured and unsecured) are the different variations of an installment loan product. There are different installment loan products offered depending on borrower needs and what they’re paying for, such as a mortgage to purchase a home, an auto loan to purchase a car, student loans to pay for college, consolidate debt, or personal loans and BNPL loans to fund personal expenditures.

If it helps, try thinking of them as tiers.

• Installment Loans
  • Secured
    • Mortgage Loan
    • Auto Loan
  • Unsecured
    • Student Loans
    • Personal Loans
    • Buy now pay later/”short term” loans
    • Debt consolidation loans

Secured vs. Unsecured Installment Loans

For example, with a mortgage loan, the house a borrower is purchasing is used as the collateral to secure the debt. This means if a borrower defaults or makes non-payment, the bank takes the house through a process known as foreclosure.

Unsecured loans need no collateral, but often come with higher interest rates because of the convenience/ease of no collateral being needed. While unsecured loans such as student loans and personal loans often come with higher interest rates than secured installment loans, they are still more frequently a smarter way to purchase than by using credit, which comes with some of the highest interest rates to borrowers.

How to Apply for an Installment Loan

If an individual has a long-standing relationship with their primary bank, check those interest rates first to see if you qualify for a customer loyalty discount. If the rate isn’t competitive, borrows should prepare to shop for an installment loan online. Fortunately, with  online applications, applying for an installment loan has never been easier and borrowers can obtain funds without ever having to set foot inside a bank or physical location.

Applying for an installment loan typically encompasses the following steps:

First, a borrower needs to check their credit score and get pre-qualified for the loan amount and interest rate. Thanks to online aggregators, borrowers can do this on a single website and receive multiple quotes from lenders within minutes. A wide range of interest rates may be offered, and these depend solely on the borrower’s credit score.

After shopping interest rates, a borrower should always compare the rates between multiple lenders. It only takes a few moments to see which lender is offering the most competitive rate and lowest loan origination costs. Consumers should be sure to look at loan fees and costs as this can impact how much you’ll pay out of pocket on the installment loan and make one lender more expensive than the other, even if a rate is lower.

Third, once a borrower sees an offer they prefer, they’ll need to formally apply. They’ll submit an application as well as income verification documents such as bank statements, a W2 from work, or tax returns. The length of the application and amount of documents they will be asked to produce will vary from lender to lender and the amount of the loan. For example, short-term lenders with loans less than $5,000 may not do more than a soft credit pull and borrowers can receive the funds next day. On the other hand,  applying for hundreds of thousands of dollars for a mortgage is more extensive and can take 30-60 days for the bank to underwrite and approve the loan.

Finally, the loan funds are disbursed, and the borrower begins repaying the loan in monthly installments.

Advantages and Disadvantages of Installment Loans

Having a fixed repayment schedule on an installment loan can help when it comes to budgeting for debt repayment, and as an added benefit, installment loans often come with much lower interest rates than those offered on credit cards or lines of credit.

Credit works best for those who use it consistently, and so lenders like to see a mix of both revolving credit and installment loans in your borrowing history, with credit mix accounting for 10% percent of an individual’s FICO score. For those who pay consistently on time each month, their FICO score will benefit from the healthy repayment history and a nice credit mix that comes with having an installment loan.

The only real disadvantage to an installment loan is for those who do not prioritize on time payments. Any late or missed payments will negatively impact a credit score, while also incurring fees.

How Installment Loans Affect Your Credit Score

When used responsibly, installment loans can actually provide big benefits an individual’s credit score. The fact that installment loans require fixed payments over a set length of time means that borrowers have the opportunity to build good, strong credit simply by making their payments on time.

Borrowers may see fluctuations in their credit due to an installment loan if they miss a payment, form a pattern of not making payments at all, or when the installment loan is paid off in full. Since most installment loans are closed out upon successful repayment, many borrowers may see a slight dip in their credit when a loan is paid off due to their total amount of credit available decreasing.

The total amount owed accounts for 30% of an individual’s FICO score, but it isn’t just about the total balances, it is about the balances relative to the amount of credit someone has access to (also known as credit utilization). For the most part, lenders like to see credit utilization below 30%.

So, for example, if a borrower has $12,000 in available credit but just paid off a $2,000 personal loan, the credit bureaus will first see that their available credit went from $12k to $10. The good news is this will adjust and balance out once they realize your balance was paid off in full. Any dips in your score will be minor and temporary, and it is always touted as good a financial practice to pay off your installment loans to decrease a balance over time.

Can you get an installment loan with bad credit?

The ability to obtain an installment loan depends on a variety of factors including: the borrowers FICO/credit score, debt-to-income ratio, how much is needed, and the application criteria of the lender.  While some lenders will go as low as a 580 credit score for lending, most lenders typically require a minimum score between 600-640, especially when giving out larger installment loans (like those needed for a mortgage, for example.)

While loans are given out largely based on borrower’s credit score, repayment history, and financial circumstances, it is possible for a borrower to obtain an installment loan with bad credit, but they may end up paying more in interest because they are seen as a “riskier” borrower in the eyes of the lender.

The best way for a borrower with bad credit to obtain an installment loan is to shop multiple lenders to see if they qualify, the interest rate they’ll receive, and to evaluate if it the interest rate costs and total repayment amount is worth the immediate access to funds. In some instances, it may make sense to wait and borrow until a person has a more competitive score and can borrow money at a lower, “cheaper” interest rate.

What are examples of installment loans?

The most common types of installment loans are below:

Mortgage loans

With a home or property acquisition often being the most expensive purchase of someone’s lifetime, it makes sense most would need to use a mortgage to pay for it. Mortgages are some of the most prevalent installment loans, and they come in 15 and 30 year repayment terms.

There are many subtypes of mortgage loans available to consumers, depending on their financial goals, credit, and the amount they need to borrow. For example, jumbo loans, FHA loans, conventional mortgages, adjustable and fixed-rate loans, are all different mortgage loan options available to home buyers. To eliminate confusion: all mortgage loans (regardless of type) are installment loans as each are repaid in fixed, monthly installments over a set term.

Personal loans

Personal loans can be leveraged for a variety of expenses and there are typically very few limitations on how the funds are spent. Many consumers use personal loans to consolidate debt, fund vacations or travel, pay for wedding expenses or medical debt, finance home improvements and more. There are a few restrictions, however, and personal loans cannot be used for home downpayments, business expenses, or college tuition.

Debt Consolidation Loans

Many personal loans are and can be used for debt consolidation, but there are debt-consolidation specific loan products that exist for borrowers struggling to make headway with their debt repayment. Let’s say an individual has $15,000 in credit card debt across three cards with different interest rates of 17%, 19% and 24%. The monthly minimums cost this person $500 per month.

The way a debt consolidation loan works is that this person would take out one loan at a single, lower interest rate – say 10% – and use the installment loan funds to pay off each card. Over the next few months (or years) this person makes just one single payment on the loan, saves a lot money on interest, and simplifies their finances by not have to keep up with three cards and three different payments

Student loans

College is expensive, and many students turn to student loans as a way to finance college expenditures such as tuition, room and board, and books. Student loans are offered by both private lenders and the federal government, with 93% of borrowers utilizing federal student loans to pay for school. The average term of repayment for a student loan is ten years, but it often takes student loan borrowers much longer to repay this type of installment loan.

Car loans

Most car buyers do not have tens of thousands of dollars on hand to purchase a car outright, even though a car is very often a necessary expense. To pay for a car, many consumers finance the purchase, often putting a little money down and then taking out an installment loan to finish paying the car off over time. While interest rates vary by lender and credit history of the buyer, data shows auto installment loan amounts have increased over the last decade. 2022 reporting from LendingTree reflects the average buyer in 2022 took on $41,000 in debt for a new car and around $27,000 for a used one.

Buy now, pay later loans

The newest type of installment loan is the “Buy Now, Pay Later” option offered at the point of sale for retailers. These installment loans (also often referred to as “micro” or “short term installment loans”) enable a buyer to break up a small purchase – the average is often less than $1000 dollars – into smaller payments, and repay what they owe at a weekly interval.

What is the advantage of installment?

The biggest advantage to installments are that they enable people to pay for big purchases they may not have the cash “on hand” for and spread out the financial burden evenly over time and for a fixed term. For example, a loan for a house can be repaid over 15 or 30 years, or an auto loan can be repaid in four or five years. The buyer gets to drive the car or live in the house immediately, but take their time paying off the purchase.

With increased cost of living and record-high inflation, most do not have tens of thousands on hand to pay for a car, college tuition, or medical debt, and so an installment loan enables them to access these items when needed, while paying them off over time.

What is the use of installment?

Installment loans are used for many purposes; from personal loans to fund large expenditures like a wedding or medical expense, to purchase a car or a home, or to pay for college. The benefit of paying via an installment loan is for a consumer to access a large sum of money for a big expenditure and repay that amount in fixed increments over time, typically at much lower interest rate than credit or payday loans.

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

There is no “difference” between a personal loan and an installment loan. Rather, a personal loan is a type of installment loan. Bear in mind, any type of loan product paid in regular intervals – like your car loan, mortgage, student loan, etc. – is an installment loan. While each loan product has different nuances, they are all a subcategory of a larger classification – the installment loan.

What are the 2 types of installment?

There are two different types of installment loan – secured and unsecured. These are aptly named as the differences of each are right in the name!

• A secured installment loan means you need a type of collateral to secure the loan; the biggest example of this is your mortgage which is secured with the property itself. Most secured installment loans will need some type of collateral of equal value to the loan.
• An unsecured installment loan needs no collateral for the debt, for example with medical debt or personal loans. With unsecured installment loans a consumer does not have to provide an asset in order to obtain funds or credit.

What type of an account is a installment loan?

Most forms of loans or credit these days are installment loans, but an installment loan account will typically have the following hallmarks:

1. the loan amount will be paid to the borrower in a large lump sum at one time
2. an installment loan will always be repaid in fixed amounts (also known as installments, hence the name)
3. And once an installment loan is repaid in full at the end of the loan term, the account will typically be considered closed.

There are five types of installment loan accounts that are most commonly seen and used by financial consumers today: mortgages, auto loans, student loans, personal loans, and buy now, pay later “micro” loans.

FAQ

How many installment loans can I have at one time?

Most consumers have a mix of installment loans in their credit profile at any given time: a mortgage, student loan, car loan, or sometimes all three. There really isn’t a limit to the amount of installment loans you can have, provided the total monthly payments on those loans does not exceed your debt to income ratio.

Debt-to-income ratio (DTI) is calculated by dividing the total of all monthly debt payments and then dividing that number monthly take-home income (after taxes.) So, for example, someone makes $3,000 a month after taxes, but has $1200 in debt payments across a mortgage, car loan, and personal loan. This individual’s DTI is 40%. Ideal DTI varies by lender, but to loan out more money, most would want to see a DTI of less than 36%. As long as the sum total of all current debt repayments are less than this 36%, anyone will typically be able to borrow up to that limit.

The one exception to this rule are mortgages. The maximum number of conventionally financed mortgages an individual is allowed to have is 10.

Will paying off an installment loan in full affect my credit?

Installment loans are considered closed ended installment accounts, meaning that once the loan is repaid, the account is closed. Because of this, once an installment loan is repaid in full and closed, this may cause a temporary drop in a borrower’s credit score. This “drop” is due to a temporary decrease in total available credit, but once the bureau adjusts your debt-to-income and credit utilization based on the paid off loan, the credit score will go back up.

Any drop in a credit score caused by paying off an installment loan is often very minor and not permanent. It is always in a borrower’s best interest to repay debts.

What is the easiest installment loan I can get approved for?

Many installment loan options exist for those with less-than-ideal credit or a thin credit profile.

With this in mind, the easiest installment loan to qualify for is a personal loan that offers no hard credit check, because then anyone can access funds. “Bad credit” options most commonly come in the form of payday loans, loans against a car title, or a personal loan. These options come with benefits such as fast funding and no credit check, but the downside is they are high-interest, short term loans, which means borrowers will have to pay the money back quickly and at great expense.

Are there any alternatives to installment loans?

Other than a loan from a friend or family member, the primary alternative to an installment loan is revolving credit, and there are many different kinds: lines of credit, credit cards, and Home Equity Line of Credit (HELOC) options. The big difference between credit and an installment loan is that credit is perpetually open and can be used continually. Rather than one lump sum being paid off over time, with credit individuals can spend what they need and are charged interest only on what they spend, and they can make multiple purchases over and over again, so long as they pay on the balance.

Credit is very often a form of unsecured debt, which means anyone with a decent credit score can access credit with no collateral or money down, but credit card rates are somewhat higher than interest rates offered on an  installment loan. Although there is more flexibility with credit products in access cash when you need it, it is easier to spend more than intended and for excess interest to accrue on the balance.

Conclusion

There are many advantages to installment loans and, frankly, little to dislike. The biggest advantage to an installment loan is that a large, lump sum is disbursed at one time, the borrower gets the funds they need, and then they have the convenience of repaying that amount in smaller payments over time. For those willing to make on-time payments for the entirety of the loan term, they can build good credit, earn equity in their home, and finance big expenditures with relative ease.