Do you need to borrow some cash but don’t want to break the bank with high-interest rates? An installment loan may be the perfect solution. With installment loans, you can borrow money and pay it back over time with a fixed repayment schedule that fits your budget. This is different from other types of loans, such as payday loans or credit cards that usually require full repayment plus interest within a short time.
Curious about the best online loans with monthly payments? We’ll dive into everything to know about such financing products below.
In the meantime, you may want to use MoneyLion to get an overview of the different types of personal loans you could qualify for.
What is an installment loan?
An installment loan can give you a lump sum of cash in exchange for monthly repayments in the future. Installment loans are a type of nonrevolving credit, meaning that when you apply for the loan, you’ll need to know the exact amount of money you want to borrow.
Once you pay back the money you owe, the lender will close the loan. Examples of installment loans and non-revolving credit are personal loans, auto loans, mortgages, and no-income loans.
The opposite of nonrevolving credit is revolving credit, which is credit that can be “refilled.” You can use it continuously up to your limit as long as you keep paying it back on time. Credit cards are the most common example of revolving credit.
How does an installment loan work?
Every installment loan has two major elements: the principal and the interest rate. Your principal is the amount of money you borrow when you first take out a loan. Interest is money you pay to your lender in exchange for giving you the loan.
Every month, you’ll make a single payment that includes both principal and interest. It’s important to compare interest rates to ensure that you’re not overpaying for your loan. High interest rates can make it harder to pay off your loan, keeping you stuck in a cycle of debt.
You’ll usually see interest expressed alongside an annual percentage rate (APR). Your APR is your effective interest rate, and it tells you how much money you can expect to pay in interest on top of your loan amount each year. For example, if you take out a $1,000 loan with a 10% APR, it means that you’ll pay 10% of your loan balance, or $100, in interest every year.
A few different types of installment loans are available. Some installment loans are only intended for specific purchases like a home or a vehicle. Other installment loans, such as a personal loan, offer more freedom. You can take out a personal loan for almost anything, from home repairs to books for college.
Can you get an online installment loan with bad credit?
Yes, it’s possible to get an online installment loan even if you have bad credit. Here are some key points to keep in mind:
- Online lenders and fintech companies tend to be more amenable to risky borrowers than traditional brick and mortar banks and credit unions. Many focus lending decisions more on current income and employment rather than credit history.
- Interest rates will likely be higher for installment loan borrowers with lower credit scores to compensate the lender for taking on increased default risk.
- Loan amounts may be lower than requested, and lenders may require collateral or a co-signer to reduce their risk when approving bad credit applicants.
- Proof of consistent income is key. Many online installment lenders set minimum income thresholds for eligibility that vary based on factors like requested loan amount and repayment timeline.
- Shop multiple lenders to compare loan offers. While one may deny your application, another may extend credit based on their tolerance policies for credit risk.
Approval is definitely attainable even with less-than-stellar credit when applying through the right online loan companies. However, be prepared for higher than average rates and more stringent loan terms given the heightened risk.
Benefits of installment loans
Installment loans offer a variety of benefits, including:
Flexible repayment plans
Borrowers have the freedom to choose the loan term according to their financial capability and desired monthly payment. This flexibility can be helpful for people with fluctuating incomes or those who want to avoid putting undue financial stress on their budgets. By providing the option to select the most suitable repayment plan, installment loans can allow for manageable and stress-free repayments.
Steady payments
Unlike credit cards or other financing options that could involve variable payments, installment loans have fixed monthly payments. You know exactly how much you need to pay every month for the duration of the loan, making it easier to plan your financial activities and avoid potential late payments or financial setbacks.
Fast approval times
Fast approval times are a significant advantage when considering an installment loan. With many installment loan providers leveraging digital technology, it is now possible to apply for a loan online and receive approval within a few minutes to a few hours. This efficient process eliminates the need to schedule in-person meetings or travel to financial institutions, making it a convenient option for people in need of immediate cash to address urgent expenses.
Fixed interest rates
With a fixed interest rate, the APR remains consistent throughout the loan’s duration. This stability shields borrowers from potential rate fluctuations, ensuring a predictable cost of borrowing and simplifying the process of calculating their overall financial commitment.
Opportunity to build credit
Timely and consistent on-time payments can demonstrate your reliability as a borrower, positively impacting your credit score. Maintaining a good credit score is essential when it comes to future financial endeavors, such as applying for a mortgage or securing low-interest rates on credit cards. By taking advantage of the relatively easy qualification process, borrowers can use installment loans to responsibly create or enhance their credit profiles.
What to know when getting an online loan
Plenty of legitimate online installment loan providers are out there. But the ease and connectivity of the internet also mean troublemakers and scammers also are out there.
It’s important to be aware of fake online loan opportunities and pay close attention when you are comparing loan options. Some offers can seem legitimate at first glance, but when you take a closer look, you’ll find that the offers are actually scams. Here are some red flags to watch for when looking for an online loan.
Payday advance loans
Providers of payday loans focus on getting money to you fast, though they do so at high interest rates. Payday loan providers usually charge a fee to borrow money, as well as interest rates that can go up to almost 400%. You should do your research thoroughly and ensure you’re aware of the risks before taking out a payday loan.
Unsolicited loan offers
Trustworthy lenders will never cold call you or send unsolicited text messages your way. Legitimate lenders advertise their services in the ways that you’d expect, such as through TV commercials or online banner ads.
Approvals guaranteed before you apply
Would you promise to loan money to a stranger if you didn’t know anything about the person? Probably not. Likewise, legitimate lenders operate under the same logic, meaning you’ll be asked to submit some form of personal identification before being offered a loan.
High-pressure sales tactics
Let’s say you apply for a loan online and receive approval. The amount of money offered in the loan is just what you need, and the APR is low. You might even have a grace period before you need to begin paying back the loan.
On the outside, it seems like you’ve found the perfect lender. Other red flags
Other red flags to look for when you shop for a loan online include:
- Several spelling or grammatical errors in the offer letter
- Copycat names that mimic legitimate banks such as Bank of Ameriica
- Lack of professionalism during email or phone correspondence
- Lenders who contact you with an @gmail.com or @outlook.com email address
- Lenders who have websites that aren’t secure
- Lenders who ask for your personal information over the phone
Be wary of the lender if you notice any of these red flags.
How to qualify for an online installment loan
Documents you’ll want to have on hand before you apply include:
- Proof of identity
- Proof of income (recent pay stubs, W-2 forms, or tax returns to verify your income)
- Bank statements
- Proof of address (a recent utility bill or other document that shows your current address)
- Employment verification or other proof of employment, such as a letter from your employer or a recent pay stub.
- Social Security number
- Collateral documentation
Qualifying for an online installment loan typically requires you to meet certain criteria, such as having a steady source of income and credit history. To start the process, you must fill out an application with your personal information, including your name, address, Social Security number, and employment history. You must be at least 18 years old to qualify, but the minimum age requirement may vary depending on the state. For example, in Alabama and Nebraska, the age of majority is 19 years old, and in Mississippi, it is 21 years old.
The lender will assess your creditworthiness and determine whether you are eligible for the loan.
Good credit is key when it comes to getting approved for an installment loan. Most lenders will require a credit score of 670 or higher, but some lenders will approve sores as low as 580. Some may require a slightly higher score depending on the specific type of loan you are requesting.
It’s also important that you have a steady income and can demonstrate your ability to repay the loan.
In addition to having good credit, lenders may also look at other factors such as your debt-to-income ratio and current financial situation when making their decision. If you have too much outstanding debt or other financial obligations that would make it difficult for you to repay the loan on time each month, you may be denied.
Some online lenders may require collateral to secure the loan amount. This means they will take something of value from you until the loan has been paid off in full. If you do not have anything of value that can be used as collateral, it might be difficult for you to qualify for an online installment loan.
Finding Online Loans with Monthly Payments with Help From MoneyLion
Installment loans are a great option for borrowing money if you need funds for a large purchase or unexpected expense. These loans offer flexibility in repayment terms, lower interest rates, and the ability to budget your finances more effectively.
With any type of financing, it’s important to carefully consider the loan terms and ensure you can afford the payments before accepting an offer. You’ll also want to compare different loan rates, terms, fees, and more to find the best fit for your situation. With MoneyLion, it’s never been easier to do. Browse and get matched with personalized offers for up to $50,000 from our top providers.
Curious to see what you could qualify for? Start reviewing your personalized loan offers
What are the advantages of taking out an online loan with monthly payments?
The advantages of taking out an online loan with monthly payments include convenience, speed, and competitive interest rates. Online loans typically offer competitive interest rates, so you can shop around to get the best deal.
What documents do I need to apply for an online loan with monthly payments?
To apply for an online loan with monthly payments, you will need to provide certain documents to verify your identity and financial information. Typically required documents include a valid government-issued photo ID such as a driver’s license or passport, proof of residence like a utility bill, proof of income such as pay stubs or tax returns, bank statements, and other documentation related to any existing debts.
What is the difference between secured and unsecured online loans with monthly payments?
The difference between secured and unsecured online loans with monthly payments is that secured loans require collateral such as property or valuables to back up the amount being borrowed while unsecured loans do not have this requirement. Unsecured loans generally have higher interest rates than secured loans to protect the lender in case of default.
