Whether you need to consolidate debt or manage one of life’s big events, a personal installment loan could help you pay for it. With a fixed interest rate and set regular monthly payments, installment loans may bring predictability to your budget. Keep reading to find out if a personal installment loan is right for you.
Table of contents
- What is an installment loan?
- Are personal loans and installment loans the same thing?
- Why should I use an installment loan?
- What’s the difference between an installment loan and a line of credit?
- What are the repayment terms and interest rates of installment loans?
- What are examples of installment loans?
- Will applying for a personal installment loan affect my credit score?
- How will borrowing an installment loan affect my credit score?
What is an installment loan?
An installment loan is a loan paid back over a specific period with a set number of scheduled payments, and borrowers typically receive the funds upfront. You can use a personal installment loan to consolidate debt, pay for a home remodeling project, or cover other personal expenses.
Are personal loans and installment loans the same thing?
A personal loan is a type of installment financing which just means repaying a lump sum in regular payments. Installment loans can be either secured or unsecured. Personal loans, student loans, and signature loans are all examples of unsecured loans. Unsecured means you don’t have to use an asset, like your car, house, or cash as collateral.
Auto loans and mortgages are examples of secured loans. They’re backed by valuable assets. You might be able to borrow larger amounts of money with a secured loan. But if you stop making payments, you could lose the item you put up as collateral.
Why should I use an installment loan?
Installment loans are predictable, which may help you budget. You’ll know what your set regular monthly payment will be, and for how long you’ll have it. This can help you plan for the rest of your expenses.
When it may make sense
An installment loan may be a good choice for you if you have a good credit rating and a strong financial history. With a personal loan, you get a lump sum of money. You can use it to pay for a variety of expenses, including home improvements and medical costs. It could also help you reach financial goals like paying down debt, remodeling your kitchen, or affording a vacation. Over 3 million people have reached their goals with Discover® Personal Loans.
When it may not
You should consider your overall financial health before taking out an installment loan. If you have a poor credit rating, your APR may increase, which can increase the total cost of the loan. If you expect any changes in your income or potential reasons you won’t be able to pay on time, you could receive penalty fees, meaning an installment loan may not be the best option.
What’s the difference between an installment loan and a line of credit?
A personal line of credit differs from an installment loan in a few ways—all of which may help determine which option is right for you.
Installment Loan | Personal Line of Credit |
|---|---|
| Disbursed in one lump sum | You can borrow a certain amount and once you pay that back, that amount is available to borrow again |
| Fixed interest rate | Usually has variable interest rates |
| Fixed payoff date | Variable ongoing repayments |
What are the repayment terms and interest rates of installment loans?
Repayment terms and rates vary by installment loan types. With a personal installment loan, you may be able to choose from a range of repayment terms. They could be based on your preferred monthly payments or the date by which you aim to pay the loan off.
At Discover Personal Loans, you can choose how long you’d like to repay your loan, from 36 up to 84 months. During that period, you pay your loan down in set regular monthly payments.
For example, if you get approved for a $15,000 loan at 11.99% APR for a term of 72 months, you'll pay $293 per month. Plus, the money can be sent as early as the next business day after you accept the terms of your loan. Other types of loans may be shorter or longer.
Your interest rate will depend on your credit score, your credit history, and the loan term.
What are examples of installment loans?
Some installment loan types include:
- Auto loans – Auto loans are secured installment loans that are repaid over a fixed number of years, usually from 24 to 84 months. If payments aren’t made, the lender has the right to repossess the automobile.
- Mortgages – A mortgage is a loan that’s used to buy a house. Payments typically extend from 10 to 30 years. They can be structured as variable or fixed-rate loans. Like an auto loan, if payments aren’t made, the lender has the right to repossess the property. This is based on the details laid out in your loan agreement.
- Student loans – Student loans are used to pay for post-secondary education and sometimes K-12 education. They’re typically installment loans paid back over a set period of time. They can carry various other repayment terms depending on several factors.
- Buy now, pay later – A buy now, pay later loan is an installment financing option offered at checkout by some retailers. The customer makes an initial payment at the time of the purchase and the loan then allows the customer to pay off the remaining balance over a number of fixed payments.
- Payday loans – A payday loan is typically a short-term loan of $500 or less. It’s intended to provide funds until your next paycheck. While it usually doesn’t need a credit check, it often comes with fees or finance charges.
Will applying for a personal installment loan affect my credit score?
With a Discover Personal Loan, you can see what your loan rate and payment could be before you apply with no impact to your credit score. After you check your rate, if you move forward with an application for a new Discover personal loan, you will need to consent to a hard credit inquiry that will appear on your credit report.
How will borrowing an installment loan affect my credit score?
Installment loans can actually help build your credit score. Over time and with regular payments, you could see your score increase. On the other hand, installment loans can potentially hurt your credit if you’re late on a payment. Consider setting up automatic payments to avoid missing or being late on any payments.
Ready to explore your loan options? See if a personal installment loan could help you pay for life's expenses.
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