Bankrate's guide to choosing the best installment loan
As of Tuesday, April 20, 2021Installment loans are financial products that let you borrow a fixed sum of money, then pay it back slowly over time. These loans, which include personal loans, also 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.
Where credit card interest rates tend to be high, installment loans extend much lower rates to consumers with good or excellent credit. Even if you have bad credit, lenders may use other factors like your income or area of study to qualify you, and you could still receive a competitive rate.
A loan from a reputable installment loan lender is always a better choice than a payday loan if you have bad credit, since payday lenders tend to charge exorbitant interest rates and fees. This guide can help you compare the best online installment loans.
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When shopping for an installment loan, compare APRs across multiple lenders to make sure that you’re getting a competitive rate. Also look for lenders that keep fees to a minimum and offer repayment terms that fit your needs. Loan details presented here are current as of the publish date, but you should check the lenders’ websites for more current information. The installment loan lenders listed here are selected based on factors such as APR, loan amounts, fees, credit requirements and other factors.
Best installment loans of 2021
| Marcus by Goldman Sachs |
6.99%–19.99% (with autopay)
|
3–6 years
|
$3,500–$40,000
|
Not specified
|
Good credit
|
| LendingClub |
8.05%–35.89%
|
3 or 5 years
|
$1,000–$40,000
|
600
|
Peer-to-peer lending
|
| Upstart |
8.27%–35.99%
|
3 or 5 years
|
$1,000–$50,000
|
620
|
Fair credit
|
| LightStream |
5.95%–19.99% (with autopay)
|
2–7 years
|
$5,000–$100,000
|
660
|
Large loan amounts
|
| Payoff |
5.99%–24.99%
|
2–5 years
|
$5,000–$40,000
|
640
|
Debt consolidation
|
| SoFi |
5.99%–20.69% (with autopay)
|
2–7 years
|
$5,000–$100,000
|
680
|
Unemployment protection
|
| Avant |
9.95%–35.99%
|
2–5 years
|
$2,000–$35,000
|
580 FICO and 550 Vantage
|
Bad credit
|
Summary: installment loans of 2021
How do installment loans work?
An installment loan is a lump-sum loan with a fixed interest rate, a fixed monthly payment and a fixed payoff term. Because of this, you'll know exactly how much is due each month and precisely when the loan will be paid off.
For example, if you were to borrow $20,000 with an 8.99 percent APR and a 60-month repayment timeline, you would pay $415 per month for five years.
How an installment loan affects your credit
Initially, an installment loan could cause a small dip in your credit score, since lenders will perform a hard credit check when approving you for the loan. However, beyond that, an installment loan could be a good way to improve your credit score. Making timely payments will positively affect your score, and if you use your installment loan to pay off credit card debt, you may see improvements to your credit utilization ratio.
The biggest risk to your credit score is if you default on your installment loan. Just as making timely payments raises your score, making late payments lowers it.
What can I use an installment loan for?
You can typically use installment loans for any purpose, but many people use them for debt consolidation, home remodeling projects or emergency expenses.
Types of installment loans
There are many types of installment loans, all designed for a specific purpose. Some of the most common are:
- Personal loan: A personal loan is a lump-sum loan that is usually unsecured. It can be used to consolidate debt, fund home improvement projects, pay for a wedding and more.
- Mortgage: A mortgage is a secured loan that is used for one purpose: to buy property, usually a house. The home 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 car serving as collateral. The loan is paid monthly until the car is paid off.
How to choose the best installment loan for you
When comparing installment loans, look for the following features:
- APR: Your interest rate determines how much your loan will ultimately cost you. Having good credit will help you qualify for the lowest interest rates.
- Loan amounts: Your loan purpose may determine which lender you choose, as some lenders have loan amounts as low as $1,000 and others extend loans as high as $100,000.
- Eligibility requirements: While your credit score is one of the most important factors in determining your eligibility, lenders may also look at your income and debt-to-income ratio. Meeting a lender's standards is the best way to get the lowest interest rates.
- Repayment terms: Most personal loan lenders set repayment terms at two to five years, although some offer terms as high as 10 years. Choosing a shorter repayment term will increase your monthly payments but lower the amount of interest you'll pay overall.
- Unique features: If customer service is important to you, choose an installment loan lender that operates physical branches. Your decision may also come down to features like unemployment protection, hardship options or robust online resources.
Should you get an installment loan?
Before applying for an installment loan, you should know your chances of qualifying, what type of rate you might receive and whether you can afford the loan. Take these steps to prepare:
- Check your credit score and take steps to improve it. While installment loan companies consider an array of factors when approving you for a loan, your credit score is one of the most important. Our guide on how to improve your credit score can help you craft a plan, but you should start by paying all your bills on time and paying down other debts in order to lower your credit utilization. You can still get a good installment loan if you have bad credit, but improving your score will lower your interest rate.
- Take a close look at your monthly income and bills. Determine how much discretionary money you have each month — this will help you figure out if you can afford monthly loan payments.
- Compare rates with at least three lenders. The best way to save money on your installment loan is by shopping around and comparing rates. Note that some of the lenders in our rankings let you check your rate without a hard inquiry on your credit report, which means it won't hurt your credit score.
- Don’t borrow more than you need. Determine how much money you need to borrow before you apply. Your monthly payment will hinge on your loan amount, repayment term and APR, and borrowing more than you need can lead to much higher payments and interest costs over time.
- Avoid payday loans and cash advances. Payday loans are short-term loans that usually must be repaid by your next paycheck, and their high interest rates and fees may cause borrowers to spiral further into debt. Similarly, credit card cash advance loans typically have transaction fees and steep interest rates that are much higher than those of personal loans. Paying that much in interest can make it harder to put a dent in your outstanding balance.
Details: installment loans in 2021
Overview: Marcus by Goldman Sachs offers installment loans with competitive interest rates and no fees. You can borrow up to $40,000 with a fixed interest rate and fixed repayment timeline, making it easy to budget for your loan payments over time. While Marcus doesn't list any specific credit score requirements, it's likely that you'll need a score of at least 660 to qualify.
Perks: Interest rates are low for consumers with good or excellent credit, and you can even secure a 0.25 percent rate discount when you sign up for autopay. There are also no sign-up, prepayment or miscellaneous fees.
What to watch out for: Marcus doesn't allow co-signers, and it doesn't list any specific eligibility requirements, so it's hard to know if the lender is a good option for you.
Read Bankrate's expert Marcus by Goldman Sachs Review
LendingClub: Best peer-to-peer installment loan
Overview: LendingClub is a peer-to-peer lender, meaning you receive your loan funds from individual investors instead of from a traditional bank. You can borrow money for nearly any reason, ranging from debt consolidation to home improvement projects.
Perks: LendingClub makes it easy to get prequalified online and without a hard inquiry on your credit report.
What to watch out for: LendingClub installment loans can come with an origination fee of 3 to 6 percent of your loan amount.
Read Bankrate's expert LendingClub Review
Upstart: Best for fair credit
Overview: Upstart is an online installment loan lender that offers competitive loan products to borrowers with good or even fair credit. You can apply for your loan online and get your money as soon as the next business day.
Perks: Upstart looks at more than your credit score when approving you for a personal loan. It also considers your education, area of study and job history.
What to watch out for: Upstart’s interest rates can be on the high side for consumers with imperfect credit, with rates capping at 35.99 percent APR. Also watch out for origination fees as high as 8 percent of your loan amount.
Read Bankrate's expert Upstart Review
LightStream: Best for large loan amounts
Overview: LightStream offers installment loan amounts up to $100,000, as well as some of the lowest interest rates for consumers with excellent credit. You can also apply online and have access to your funds within the same day.
Perks: LightStream offers a discount on your APR when you sign up for autopay, and you can borrow considerably more with this lender than you can with some competitors — up to $100,000. These loans also come with no fees.
What to watch out for: While LightStream's website doesn't list specific eligibility requirements, it does mention that LightStream borrowers typically have several years of credit history with a variety of accounts, such as credit cards, auto loans and mortgages. If you don't fit this profile, LightStream may not be the best fit.
Read Bankrate's expert LightStream Review
Payoff: Best for debt consolidation
Overview: Payoff is an online lender that gears its installment loans toward consumers who need to consolidate high-interest credit card debt. Interest rates start at just 5.99 percent APR, and these loans don’t come with common fees like prepayment fees, application fees or even late fees.
Perks: Because Payoff offers loans solely for credit card debt consolidation, borrowers can focus on repaying existing debt and boosting their credit scores. Borrowers can also take advantage of free FICO score updates, cash flow assessments, quarterly check-ins during the first year and more.
What to watch out for: Payoff installment loans can charge an origination fee of up to 5 percent of your loan amount. Payoff is also not the right choice for anyone looking to use a loan for anything other than credit card debt consolidation.
Read Bankrate's expert Payoff Review
SoFi: Best for unemployment protection
Overview: While SoFi is mostly known for its popular student loan refinancing products, it also offers installment loans with long repayment timelines. SoFi also offers unemployment protection that allows you to temporarily pause your monthly payments in the event that you lose your job.
Perks: SoFi installment loans don’t charge any fees, and you may be able to borrow up to $100,000 depending on your income and other factors.
What to watch out for: These loans are geared toward consumers with good credit, so you’ll need to have a credit score of at least 680 to get approved.
Read Bankrate's expert SoFi Review
Avant: Best for bad credit
Overview: Avant focuses on installment loans for consumers with fair and poor credit, so it may be a good option if your score falls in this range. Interest rates start at 9.95 percent APR, so it’s possible to get a reasonable rate and save money on debt consolidation or any other loan purpose.
Perks: Avant lets you get prequalified online without a hard inquiry on your credit report. It also serves a wider range of credit scores than many other lenders; its minimum FICO score is 580, and most of its customers fall in the 600-700 range.
What to watch out for: Watch out for administration fees, late fees and dishonored payment fees. Interest rates can also be high for consumers with the lowest credit scores, peaking at 35.99 percent.
Read Bankrate's expert Avant Review
Frequently asked questions about installment loans
Can I get an installment loan with bad credit?
Installment loans for bad credit do exist, but you’ll need to shop around and compare several options, since every lender has different eligibility requirements. With poor credit, you can also expect your installment loan to have a higher interest rate and possibly more loan fees.
Are there no-credit-check installment loans?
There are lenders that offer long-term installment loans with no hard pull on your credit report. However, getting a loan from a lender that doesn't check your credit is not a good idea. Without credit checks, lenders can't gauge your ability to repay.
No-credit-check lenders may bill themselves as alternatives to other last-resort sources of cash, such as payday loans and car title loans, but consumers should be very cautious. "Applicants who are looking for lenders who aren't going to check their credit are doing so because they either have lousy credit or they have no credit," says John Ulzheimer, an Atlanta-based expert on credit reports and identity theft. "Either way, they're high-risk borrowers. As such, the terms they'll be paying are going to be punitive when compared to normally underwritten installment loans."
He continues: "If lenders cannot access your credit reports and scores then they're going to subsidize your risk some other way. That means lower loan amounts and higher rates." If you have your credit checked with a mainstream lender, you'll likely find higher loan amounts, longer repayment timelines and better rates.
Are installment loans secured or unsecured?
The installment loans we profiled here are unsecured, meaning you don’t have to provide any collateral to qualify. With that being said, secured loans that require collateral are also available and may be your best option if you have poor credit.
How do installment loans work for debt consolidation?
Installment loans are popular for debt consolidation due to the fact that they tend to offer lower interest rates than credit cards. For example, if you have multiple lines of credit card debt at an 18 percent APR, you can save money by transferring that debt to an installment loan at a 9 percent APR. That way, you pay less in interest and can focus on paying one fixed bill instead of several.
How are installment loans different from payday loans?
Payday loans are secured by your paycheck. When you get a payday loan, you give the lender a postdated check to deposit on your next payday, or the lender may require authorization to directly withdraw the money from your bank account after you get paid. Payday lenders charge exorbitant fees and can send the borrower into an endless cycle of mounting debt.
Can you have multiple installment loans?
Having multiple installment loans is not only possible, but also fairly common. If you're paying a mortgage and making car payments, you've already got two installment loans. If you also take out an unsecured personal loan, you've added a third installment loan.
What happens if I default on an installment loan?
If you default on an installment loan, your credit score will suffer. When your credit score tumbles, lenders see you as a risk, and you will not qualify for good rates and terms on future loans — if you can even qualify for another loan. If you secured your installment loan with something of value, the lender may be able to seize whatever collateral you provided.
Alternatives to an installment loan
If you're having trouble qualifying for an installment loan, particularly if you have bad credit, you may want to look at some other options for borrowing money:
- HELOC: Unlike an installment loan, a home equity line of credit (HELOC) does not give you money upfront, but rather lets you access a set credit line for a period of 10 to 15 years. You can make payments on the HELOC in order to replenish funds, but you are not obligated to pay back anything but interest until the draw period is over. Because they are secured loans, you may have an easier time qualifying if you have poor credit.
- Credit card: While credit cards come with higher interest rates than installment loans, you can avoid paying interest altogether if you pay your balance in full every month. And if you're looking to consolidate debt, you may be able to take advantage of a balance transfer credit card that charges no interest for the first 12 to 18 months.
- Personal line of credit: Like credit cards and HELOCs, personal lines of credit (PLOCs) let you access only as much money as you need. You'll likely need to meet the same eligibility requirements as with a personal loan, but you won't be locked into a fixed monthly payment if you're approved.
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