Installment loans are a handy tool for anyone looking to fund a large expense, finance a renovation or get access to cash quickly. However, they aren’t always the right choice and not every loan is created equally. While there are a variety of installment loans the lump sum and immediate repayment can hinder those who need payment flexibility.

If an installment loan isn’t right for you, there are multiple options to help you get the funding you need that may provide more flexibility like a line of credit or a credit card.

Lines of credit

Not every lender offers personal lines of credit — especially if you’re looking for an unsecured option. Despite this, they are a worthwhile alternative to a personal loan. They offer more flexibility than a personal loan and often have a lower interest rate than a credit card.

With a personal line of credit, you can spend what you need during the draw period and make interest-only payments. When your draw period ends, your line of credit becomes the equivalent of a term loan.

However, you may be required to provide some form of collateral, especially if you’re borrowing a larger amount. Lenders may request you use a savings account, investment account or CD to secure your loan. Unsecured lines are less common and you may need a higher credit score to get access to competitive rates.


  • Flexible spending.
  • Only pay interest on the amount you use during the draw period.


  • Less lender options.
  • Collateral may be required.

Credit cards

Credit cards can be difficult to manage if you aren’t on top of your spending. But because they offer some of the best perks — like cash back and travel rewards — they are a good option if you are able to use them with purpose.

Their high interest rates can be avoided if you pay back what you spend at the end of your billing period. The lower your balance at the end of each month, the less interest you will pay. This allows you to take advantage of the perks without being charged exorbitant rates.

However, the best cards that have the highest reward structures often come with steep annual fees. These could be worth it if you have the income and credit score to qualify for top cards and you plan to spend frequently to make the most of the rewards. If not, you will need to ensure the benefits outweigh the amount you spend on the card each year before applying.


  • Membership perks like cash back or travel rewards.
  • No interest if you pay off the amount you spent before the billing cycle ends.


  • High interest rates compared to personal loans.
  • May come with steep annual fees.

Home equity lines of credit

A home equity line of credit (HELOC) is the best option if you need to cover a series of major expenses, like home renovations or school tuition. Most HELOCs have draw periods of 10 years, which gives you plenty of time to spend as needed. In most cases, you can borrow up to 85 percent of your home’s equity. So if you’ve invested in your property, a HELOC can unlock a large amount of funds.

The major drawback is that your house acts as the collateral for the line of credit. If you can’t make the payments, your lender may pursue foreclosure to satisfy the delinquent balance. The process isn’t immediate and your lender may be willing to negotiate or extend alternate payment plans, but it is a risk.

Due to the minimized risk to the lender because of the collateral, rates and fees tend to be lower than compared to unsecured loans. Plus, they’re generally easier to qualify for, so those with less-than-stellar credit have a better chance of approval. Still, you’ll need to have the income and credit score to back your application if you want to secure the most funds at the lowest rates.


  • Potential to deduct interest for certain expenses.
  • Interest-only payments during draw period.


  • Risk foreclosure if unable to pay.
  • Home appraisal and other fees may be necessary.

When to get an installment loan

Lines of credit and credit cards are ultimately tools you may want to use if you have frequent expenses to cover. An installment loan — like a personal loan or auto loan — may be the right choice if you need the funds in one lump sum amount.

If you prefer stability, then an installment loan may be a better match for you. They come with fixed monthly payments so you’ll know what to expect each month, unlike products that have variable interest, like lines of credit and credit cards.

Considerations when getting a loan

Before deciding to get an installment loan, there are several factors you should consider.

  • Review your finances. Determine how much money you need to borrow and make sure you’ll be able to make the monthly payment. You can get an estimate by running the numbers through a personal loan calculator.
  • Check your credit score. This will determine how much money you will qualify for and your interest rate. You want to have at least fair credit, which is a FICO score between 580 and 669. You can check your score at Annual Credit
  • Compare lenders to find the best rate and terms. This includes banks, credit unions and online lenders. Try to get prequalified so you’ll know your interest rates.
  • Review all your options. Compare the rate you would get on an installment loan with the rates and terms with a personal line of credit, HELOC and credit cards. Go with the option that makes the most sense for your personal situation.

The best option depends on your needs

Installment loans may be a convenient option when you need to cover a big expense, but they aren’t always the right choice for every borrower. If you need a more flexible option in terms of payments or funding, a credit card or line of credit may be the better choice.

However, keep in mind that no matter what route you take, always compare lenders and apply for preapproval to find financing that fits your budget and needs.