Melanie Lockert is a writer and author of “Dear Debt” with over 10 years of experience. Her work has been featured by CNN, Business Insider, U.S. News & World Report, and Yahoo Finance.
Meredith Mangan is a senior editor at Credible. She has more than 18 years of experience in finance and is an expert on personal loans.
Updated October 22, 2024
Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Credible takeaways
There are various types of installment loans available, such as personal loans, home loans, and auto loans.
Secured loans tend to have very specific purposes, like buying a home or car.
Unsecured loans, like personal loans, are commonly used for a wide range of purposes, from funding a vacation to consolidating credit card debt.
An installment loan lets you finance a purchase over several months or years. Whether you get an auto loan, personal loan, mortgage, student loan, or another type, installment loans provide capital upfront that you can use as the loan permits. They’re convenient, accessible, predictable, and can enable you to buy what you need now if you don't have the cash on hand.
In this guide, learn about installment loans, how they work, and the different types available.
Installment loan definition
An installment loan is a type of lending product that provides you with money upfront in exchange for making payments in regular, scheduled installments over a set repayment period. Payments are determined based on the loan's interest rate, principal (the amount borrowed), and the repayment term.
How does an installment loan work?
When you take out an installment loan, you’re taking out a closed-end loan — meaning you can’t borrow more than the original amount and the loan has a set end date. You agree to repay the amount borrowed plus interest charged on that amount over the duration of the loan's term.
Payments
During the repayment period, you’ll make regular, scheduled payments (usually monthly) that include both interest and principal. At the end of the repayment period, the loan is paid off in full, assuming you’ve made timely payments. Many installment loans have fixed payments and a fixed interest rate (meaning neither will change during the loan's term). But some installment loans, such as adjustable rate mortgages (ARMs), have an interest rate that can change, meaning your payment can change.
Installment loan payments are typically amortized over the loan's term, which serves to equalize monthly payments. For instance, at the beginning of a loan, the bulk of your payments will go toward the interest you owe. However, as you pay down the principal, your monthly payment will remain unchanged (on a fixed-interest loan), but interest charges will decrease. This means more of your payment will go towards paying down the amount you borrowed.
Installment loans are available for a wide range of purposes, like buying a car, home, boat/RV, paying for emergencies, or paying off other debt. They can be secured by collateral (like a car, home, or RV) or unsecured. Unsecured loans tend to have higher annual percentage rates (APRs) than secured loans because there’s no collateral and the lender takes on more risk. With secured loans, you’re at risk of losing your collateral if you default.
To qualify for any installment loan, you need to prove to a lender that you’re able to make payments on the loan. Typically, lenders consider your income, credit score, credit history, and current debt to make this assessment.
Some installment loans, like personal loans, disburse funds directly to you, while others can send money directly to the seller of whatever you’re buying.
Installment loans vs. revolving credit
Installment loans differ from what’s referred to as a revolving loan or revolving credit. For example, credit cards are revolving and open-ended, allowing you to access a credit line, make payments, and continue to borrow for an indefinite amount of time. They commonly have variable interest rates, and a minimum payment that fluctuates depending on your current balance and the current rate.
Installment loans, on the other hand, provide a specific one-time loan amount upfront, typically have fixed payments and a fixed rate, and have a set end date for your payments.
Secured vs. unsecured installment loans
Installment loans come in two varieties — either secured or unsecured. Secured installment loans use an asset like a car, home, or even a savings account to “secure” the loan. This provides lenders a level of protection so that if you fail to make payments, they can take the asset to repay the loan.
Unsecured installment loans don’t require borrowers to put up any collateral to obtain the loan. As a result, they may have a higher APR or be harder to qualify for than a secured loan.
Securing a loan typically makes it easier to get approved and can help you qualify for a lower APR. Since the loan is backed by an asset, it’s not considered as risky to the lender.
Examples of installment loans
Here are some common examples of installment loans.
Personal loan
A personal loan is often an unsecured loan that can be used for a wide range of purposes. Some examples include debt consolidation, home repairs, medical bills, emergencies, and other large purchases.
Online lenders, banks, and credit unions offer personal loans of under $1,000 to $100,000 or more, depending on the lender and what you qualify for. Most personal loans don’t require collateral, and are repaid over two to seven years.
Since there’s no collateral to appraise, you could get approved for a personal loan the same day you apply, and have the money within the next couple of business days (some lenders even offer same-day personal loans).
Personal loans are similar to credit cards in that they're both unsecured. However, personal loans are often more affordable than credit cards. According to the Federal Reserve, the average APR for a credit card was 21.86% in August 2024, while the average APR for a 24-month personal loan was 12.33%. Borrowers with excellent credit are most likely to qualify for the best rates.
Mortgage
A mortgage is a type of secured installment loan that uses your home as collateral. As such, rates on mortgages tend to be much lower than rates on unsecured installment loans. In the event you can no longer pay your mortgage, the home can be seized through foreclosure.
When you apply for a mortgage, you get funds upfront to cover the purchase of your home. As a borrower, you make regular payments for the duration of the repayment term, which is typically 15 or 30 years. Your mortgage payment depends on the type of mortgage you get.
A fixed-rate mortgage has a fixed interest rate and a fixed monthly payment that stays the same over the life of the loan.
An adjustable-rate mortgage (ARM) has a variable interest rate, which means your rate and monthly payment can fluctuate during the repayment term based on market conditions. ARMs often have lower initial rates than fixed-rate mortgages until they adjust and the rate (typically) increases. This could be within months, one year, or a few years.
Student loan
A student loan provides money upfront to borrowers to cover educational costs such as tuition. You can get federal student loans through the U.S. Department of Education and take out private student loans from private student loan lenders.
Federal loans are fixed-rate loans. Private loans may be either fixed or variable-rate loans. For borrowers with variable-rate private student loans, the rate can change based on shifts in the market, which can affect the size of your loan payments.
As a borrower with fixed or variable-rate student loans, you make monthly payments to pay back the loan with interest until the end of your repayment term. Payments are predictable with fixed rates, whereas payments can fluctuate over time with variable rates.
Auto loan
An auto loan is how most people finance the purchase of a car. You can drive away with a car now and make monthly payments over your repayment term. Auto loans can come with fixed rates or variable rates, though fixed rates are more common.
Like a mortgage, auto loans are secured, but in this case by the car you used the loan to buy. If you default on your auto loan, the car can be repossessed.
Before applying for an installment loan, see if you can prequalify or get pre-approved for certain types. For example, you may be able to prequalify for personal loans, auto loans, and private student loans with no impact to your credit score. However, once you formally apply for a loan, your credit score may dip slightly. Note that prequalification is not an offer of credit, and your final rate may differ from the estimate.
A credit check isn’t required for a Direct Subsidized or Unsubsidized student loan. However, if you plan to get a Direct PLUS student loan (for graduates, professional students, or parents), your credit may be checked, and an adverse credit history could disqualify you.
Mortgage lenders typically offer processes for both prequalification and pre-approval. However, the latter carries much more weight with sellers when you’re looking to buy a home.
Prequalification provides a rate estimate once you give the lender basic personal information, answer a few questions about your finances, and allow the lender to perform a soft credit check. Pre-approval requires that you complete a comprehensive application with a hard credit check, and results in an offer of credit that’s good for a certain period of time, such as 90 days.
Online installment loans for bad credit
If you have bad credit, it can be difficult to qualify for a loan, but it’s not necessarily impossible. For instance, secured loans may be easier to qualify for with bad credit; applying with a cosigner or with a co-borrower can help as well.
A cosigner is a friend or family member, ideally with good credit, who agrees to make payments on a loan if you can’t, but does not have access to loan funds. A co-borrower is also obligated to make loan payments, but does have access.
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
pros
Borrowers with bad credit considered
Funds as soon as the next business day
2-year loan terms available
cons
No discounts offered
Origination fee
Not available in HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Loan amount
$2,000 to $35,000**
Fees
Origination fee, late fee, dishonored payment fee
Discounts
None
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Min. income
$1,200 monthly
Customer service
Phone, email
Soft credit check
Yes
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
pros
Fair credit borrowers eligible
Autopay and direct pay discounts
Can fund in as little as 1 business day
Mobile app
Secured loans available
cons
High maximum origination fee
Cosigners not accepted on home improvement loans
Low J.D. Power ranking
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Repayment terms
2 to 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
Available in all states
Min. income
Does not disclose
Customer service
Email
Soft credit check
Yes
Time to get funds
1 business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Reprise may be an excellent option if you need a loan with bad credit. The lender says it will consider applicants with FICO scores as low as 550, and offers secured loans as well as some cosigned loans to help you qualify. Loan funds can be available the next business day once you’re approved. Plus, the company has a 4.7 Trustpilot rating — indicating generally satisfied customers.
But Reprise is not for everyone. Available loan amounts are relatively low at $25,000, and the minimum repayment term is relatively high at three years. The lender also charges origination fees, does not offer discounts, does not consider income from self-employment, and is not available nationwide.
pros
Loans for bad credit
4.7 Trustpilot rating
Secured loans available
Cosigners considered
Next-day funding available
Easy to contact
cons
Does not accept self-employment income
Minimum 3-year loan term
Relatively low maximum loan amount ($25,000)
Origination fees up to 6%
Not available nationwide
No mobile app
No discounts for autopay or direct pay
Loan amount
$2,500 to $25,000
Repayment terms
3 to 5 years
Fees
$15 late fee except where the state has a different limit (ie. NM), return payment Fees - $20 except where state has a different limit (ie – NM), and no prepayment penalty
Discounts
None
Eligibility
Unavailable in CO, CT, HI, IA, ME, MD, MA, NV, NJ, NY, SD, VT, WA, and WV
Min. income
Sufficient disposal income
Customer service
Phone
Soft credit check
Does not disclose
Time to get funds
1-7 business days depending on loan security type
Loan uses
Credit card refinancing, debt consolidation, emergencies, major purchases, medical and dental expenses, moving expenses, special occasions, unexpected expenses, vacation and travel
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
pros
Borrowers with bad credit considered
$25,000 annual income requirement
Autopay and direct pay discounts available
Can fund in one business day
cons
High APRs
Potentially high origination fees
Not available in Iowa
Loan amount
$1,000 - $50,000
Repayment terms
3, 5, or 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Min. income
$25,000 annually
Customer service
Phone, email
Soft credit check
Yes
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
pros
Flexible eligibility requirements
Offers secured options
Competitive bad-credit loans
Physical presence
cons
Availability
Origination fees
High starting APR
Low maximum loan amount
Loan amount
$1,500 to $20,000
Fees
Origination fee, unsuccessful payment fee, late fee
Discounts
None
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
pros
Borrowers with bad credit considered
Funds as soon as the next business day
2-year loan terms available
cons
No discounts offered
Origination fee
Not available in HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Loan amount
$2,000 to $35,000**
Fees
Origination fee, late fee, dishonored payment fee
Discounts
None
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, WV, WA, AP, AE, and AA
Min. income
$1,200 monthly
Customer service
Phone, email
Soft credit check
Yes
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
pros
Fair credit borrowers eligible
Autopay and direct pay discounts
Can fund in as little as 1 business day
Mobile app
Secured loans available
cons
High maximum origination fee
Cosigners not accepted on home improvement loans
Low J.D. Power ranking
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Repayment terms
2 to 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
Available in all states
Min. income
Does not disclose
Customer service
Email
Soft credit check
Yes
Time to get funds
1 business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Reprise may be an excellent option if you need a loan with bad credit. The lender says it will consider applicants with FICO scores as low as 550, and offers secured loans as well as some cosigned loans to help you qualify. Loan funds can be available the next business day once you’re approved. Plus, the company has a 4.7 Trustpilot rating — indicating generally satisfied customers.
But Reprise is not for everyone. Available loan amounts are relatively low at $25,000, and the minimum repayment term is relatively high at three years. The lender also charges origination fees, does not offer discounts, does not consider income from self-employment, and is not available nationwide.
pros
Loans for bad credit
4.7 Trustpilot rating
Secured loans available
Cosigners considered
Next-day funding available
Easy to contact
cons
Does not accept self-employment income
Minimum 3-year loan term
Relatively low maximum loan amount ($25,000)
Origination fees up to 6%
Not available nationwide
No mobile app
No discounts for autopay or direct pay
Loan amount
$2,500 to $25,000
Repayment terms
3 to 5 years
Fees
$15 late fee except where the state has a different limit (ie. NM), return payment Fees - $20 except where state has a different limit (ie – NM), and no prepayment penalty
Discounts
None
Eligibility
Unavailable in CO, CT, HI, IA, ME, MD, MA, NV, NJ, NY, SD, VT, WA, and WV
Min. income
Sufficient disposal income
Customer service
Phone
Soft credit check
Does not disclose
Time to get funds
1-7 business days depending on loan security type
Loan uses
Credit card refinancing, debt consolidation, emergencies, major purchases, medical and dental expenses, moving expenses, special occasions, unexpected expenses, vacation and travel
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
pros
Borrowers with bad credit considered
$25,000 annual income requirement
Autopay and direct pay discounts available
Can fund in one business day
cons
High APRs
Potentially high origination fees
Not available in Iowa
Loan amount
$1,000 - $50,000
Repayment terms
3, 5, or 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Min. income
$25,000 annually
Customer service
Phone, email
Soft credit check
Yes
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
pros
Flexible eligibility requirements
Offers secured options
Competitive bad-credit loans
Physical presence
cons
Availability
Origination fees
High starting APR
Low maximum loan amount
Loan amount
$1,500 to $20,000
Fees
Origination fee, unsuccessful payment fee, late fee
Discounts
None
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Installment loans may help your credit score if you’re responsible and make on-time payments. If you don’t yet have an installment loan, adding one to your credit mix can show lenders your ability to handle various types of debt.
However, adding a new loan can decrease the average length of your credit history and increase the amount you owe, overall (either can negatively impact your score). If you miss payments or make late payments on installment loans, your credit score can be negatively impacted as well.
What are the easiest installment loans to get approved for?
Open
The easiest installment loans to get approved for are federal student loans and no-credit-check personal loans. These types of loans don’t require a credit check for approval, making them easier to access for all credit types.
Federal loans have fixed interest rates, but no-credit-check personal loans may have higher interest rates and fees to compensate the lender for its increased risk.
Is a payday loan an installment loan?
Open
A payday loan is not an installment loan. Payday loans offer quick cash at steep rates, and full repayment is generally due the next payday in one lump sum. While both payday and installment loans can provide funds, installment loans are generally much less risky.
Melanie Lockert is a writer and author of “Dear Debt” with over 10 years of experience. Her work has been featured by CNN, Business Insider, U.S. News & World Report, and Yahoo Finance.
