Best installment loans in October 2023

How to choose the best lender

It is a good idea to compare at least three lenders before deciding on one. When looking for an installment loan, consider the following.

1. Approval requirements: Each lender has its own requirements for loan approval. They consider your credit score, debt-to-income ratio and overall financial health. Some lenders also consider other factors, like your education and job history. 
2. Interest rates: The lowest advertised interest rate is never guaranteed. Make sure to incorporate any added fees the company charges when calculating your interest rate.
3. Loan amounts: Make sure the lenders you consider offer the amount of money you need to borrow. Some lenders offer loan ranges better suited for small purchases, while others offer loans up to $100,000.
4. Repayment options: Personal loan lenders typically offer several different repayment term options. A longer repayment period will decrease your monthly payment, but a shorter repayment period cuts down on overall interest.
5. Unique features: Keep an eye out for perks offered by lenders, such as introductory APRs, discounts and online financial tools.
6. Customer service: Different lenders provide different levels of customer service. If you are more comfortable with in-person service, choose a lender that offers that. Many lenders have online chat features and daily customer support phone hours.

What is an installment loan?

Installment loans are a form of credit that allows you to borrow a fixed sum of money and pay it back slowly over time. These loans, which include personal loans, typically come with the benefit of fixed interest rates and fixed monthly payments, so you always know how much you owe each month and when your final payment will be due.

Installment loans often have lower interest rates than credit cards, so they’re more affordable. They are also a far better choice than payday loans, which tend to charge triple-digit interest rates and fees, and must be repaid once you receive your next paycheck.

What can I use an installment loan for?

One of the attractive features of an installment loan is its versatility. Personal loans, which are a popular type of installment loan, can be used for multiple purposes, including the following.

• Debt consolidation: Debt consolidation loans are personal loans intended to combine multiple debts into a single loan, typically with a lower interest rate. The goal of debt consolidation loans is to make your payments more manageable, while allowing you to pay off your debt faster.
• A wedding: Personal installment loans can be used to finance major expenses, such as a wedding. However, you should be mindful of how much you borrow for a big event, as too much debt can cause financial strain in the long term. 
• Home remodeling projects: Both personal loans and home equity loans can be used to finance home improvement projects.
• Emergency expenses: Installment loans can also be used to cover emergency expenses — such as a car or home repair. There are loans specifically intended to cover emergencies, typically with quicker funding times and lower borrowing amounts.

Where to get installment loans

You can get an installment loan from banks, credit unions, online lenders and peer-to-peer lenders.

If you have good to excellent credit, banks are usually the best choice as they tend to have lower interest rate caps than other lenders. Banks also tend to offer autopay and loyalty discounts, which may help you further reduce your rate. 

On the other hand, If you have fair credit, credit unions and online lenders may be the better option as they tend to be more lenient with their credit requirements. Peer-to-peer lenders also tend to lend to those with less-than-stellar credit. However, they often charge origination fees of up to 10 percent and interest rates as high as 36 percent.

Types of installment loans

• Personal loan: A personal loan is a lump-sum loan that's usually repaid in one to seven years. It's usually unsecured, and the money from the loan can be used in myriad ways: to consolidate debt, fund home improvement projects, pay for a wedding, cover emergency expenses, and more.
• Mortgage: A mortgage is a secured loan that is used for a single purpose: to buy property, usually a house. The home serves as collateral and secures the loan, which is paid monthly over a long term, usually 15 or 30 years.
• Auto loan: An auto loan is a secured loan that is used to buy a car, with the vehicle serving as collateral. The loan is paid monthly, typically in two to seven years. Use our auto loan calculator to determine what your monthly payment might be.
• Student loan: A student loan is a type of unsecured loan that can be used to pay for education expenses, such as tuition, fees and room and board. These can be obtained through the federal government or through private lenders and have repayment terms ranging from five to 20 years.
• Buy now, pay later loans: Recently buy now, pay later (BNPL) loans have gained in popularity. Offered at checkout by retailers, it's a loan that's usually paid back in four installments.

Pros and cons of installment loans

How an installment loan affects your credit

Installment loans can be good or detrimental for your credit score, depending on how you manage them. These are some of the ways installment loans can impact your credit.

• Making on-time payments could boost your credit score: As payment history makes up 35 percent of your score, being on time with your monthly payments can help your credit. On the flip side, being late or having missed payments could negatively impact your score.
• Paying the loan in full can improve your credit: While paying the loan off on time and in full can bump up your score, paying it off early most likely won't have a huge impact over paying it off on the agreed-upon schedule.
• It'll stay on your credit report for 10 years: Once your loan is paid off, it's considered a closed account. Closed accounts that are in good standing could do good for your credit, as they stay on your credit file for 10 years.

Alternatives to installment loans

If, after evaluating your options, you’re still wary about applying for an installment loan, here are some alternatives you can explore to get the funds you need:

• Credit cards: Depending on the size of your expense, using a credit card to fund could be a great option for flexibility. That said, they tend to have higher interest rates than personal loans. If possible, try applying for a 0 percent introductory rate credit card, as this will give you more room to pay off your balance without accruing interest.
• Money from your savings: If you have enough money saved to fund your expense without cutting yourself short, then this is a good option to explore. By using your savings, you avoid spending money on interest and fees.
• Tap into your retirement account: Although not ideal, withdrawing money from an IRA or a 401k is another choice to consider. That said, you could be facing a higher tax bill by doing this, plus you may fall behind on your retirement savings.
• Help from family or friends: If you only need to borrow a small amount, you can ask a family member or a friend to lend you money until you can get back on your feet.

FAQs about installment loans