What Are Personal Installment Loans?

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what are personal installment loans

Are you in a financial pinch? A personal installment loan is one way to borrow a lump sum of money and repay it over a fixed period of time in equal monthly installments. In this guide, we’re going over what qualifies as a personal installment loan, what rates and fees to expect, eligibility requirements, how to get pre-approved, and the pros and cons of tapping into these products in comparison to other financing instruments like personal lines of credit or title loans.

Ready to learn about personal installment loans? Let’s dive into it. 

Understanding personal installment loans

An installment loan — also called an installment credit — is a loan where you receive funds and pay them back over time. The payments are fixed, and they’re spread over a loan term set by the lender. Many popular loan types are installment loans:

  • Mortgages
  • Car loans
  • Student loans

Personal installment loans work the same way. But unlike mortgages, car loans, and student loans, they don’t have to be used to make a specific purchase.

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How do personal installment loans work?

You will receive money in your bank account if your loan application is approved. You pay it back in set installments over a repayment term and at an interest rate determined by the loan provider.

Personal installment loans can be an accessible financing option when you need more funds than a credit card provides but don’t want to tap into home equity. With better rates and terms than payday loans, personal installment loans can have fixed interest rates and feature funding amounts as high as $50,000, with repayment terms spanning several years. 

Of course, the exact terms of a personal installment loan will depend on the specifics of the lender you’re working with as well as your own qualifications. 

What are the typical requirements to qualify for a personal installment loan?

Lenders want to make sure you’ll be able to pay them back, so they will likely ask you for a few things:

  • Your credit score
  • Your income
  • Your employment status

You are more likely to qualify if you have a higher credit score or a higher income. If you have both a higher credit score and a higher income, you might qualify for larger amounts of money.

Benefits of personal installment loans

These loans can be helpful in more ways than one:

1. Flexibility in repayment terms

Some lenders will work with you to set repayment terms. For instance, if you want lower monthly payments, they might be able to extend the loan term. 

2. Fixed interest rates

Some personal installment loans have high-interest rates. But because the rates are fixed, you won’t be blindsided by rapid rate changes like you could be with a variable-rate loan.

3. Accessibility

You can get a personal loan from a bank, but many online lenders offer them as well. In most cases, you can apply and be approved without leaving your home.

In addition, many lenders offer personal loans to people with low credit scores. Even if you don’t qualify for a car loan or a mortgage, you might qualify for a personal installment loan.

4. Builds credit history

If you take out a personal loan and make all payments on time, you show lenders that you can borrow and repay responsibly. As a result, your credit score is likely to go up.


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Types of personal installment loans

Not all personal loans are the same. Before choosing one, make sure you understand which type it is.

1. Secured personal installment loans

With a secured loan, you put down valuable property as collateral in case you fail to pay it back. If you have poor credit, you may be more likely to be approved for a secured loan than an unsecured one. Secured loans also tend to have lower interest rates.

Those rates are typically lower because you take on more risk. If you can’t pay, the lender can take whatever collateral you put up.

2. Unsecured personal installment loans

Because the lender takes a bigger risk with unsecured loans — there’s no collateral for it to take if you don’t pay — they usually have higher interest rates. Most lenders want you to have a credit score that’s at least in the fair range.

3. Online personal installment loans

If you want a personal loan, banks aren’t the only option. Many online lenders offer them, too. Online lenders usually disburse loans faster than traditional lenders, so they’re great if you need money for an emergency expense.

As a bonus, they also usually have lower interest rates. Most lenders offer prequalification, so you can apply and see whether you’re eligible with no hit to your credit score.

Common uses for personal installment loans

What are personal installment loans used for? You can use them for a range of different expenses:

1. Debt consolidation

Some lenders may offer debt consolidation loans. If they don’t, you can also take out a personal loan to consolidate debt. If the loan has a lower interest rate than your current debt, you could save money in the long run.

2. Home improvements

Whether you’re making a few small fixes or taking on a major renovation project, a personal installment loan might help.

3. Major purchases

You usually take out a mortgage to buy a house and an auto loan to buy a car. But these aren’t the only major purchases you might want to finance. If you’re buying something costly, a personal loan can help you get funds upfront.

4. Emergency expenses

Emergencies are stressful. And they’re even more stressful if you can’t pay for them. A personal loan can get you the funds you need.

How can a personal installment loan help you?

Now you know what personal installment loans are, you can determine whether one is right for you.

FAQ

Can I get a personal installment loan with bad credit?

It’s harder to get a personal installment loan with bad credit or no credit, but some lenders can approve you. It may help to look specifically for loans for people with bad credit.

How long does it take to get approved for a personal installment loan?

Some lenders approve or deny you in 60 minutes or less. Others may take a few business days or longer.

How much can I borrow with a personal installment loan?

That depends on your credit and your income. Most lenders won’t offer personal loans above $100,000. Large loans are uncommon — most personal loans range from a few hundred to a few thousand dollars.

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