Jan 02, 2024

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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, an installment loan can bring predictability to your budget. Keep reading to find out if a personal installment loan is right for you.

What does “installment loan” mean?

An installment loan is a loan paid back over a specific period with a set number of scheduled payments. You can use a personal installment loan to consolidate debt, to pay for a home remodeling project, or to pay for other personal expenses.

Are personal loans and installment loans the same thing?

A personal loan is a type of installment loan. Installment loans can be either secured or unsecured. Personal loans and student loans are 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 are 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 know what your set regular monthly payment will be, and for how long you will have it. This allows you to plan for the rest of your expenses.

If you have a good credit rating and a strong financial history, a personal installment loan might be a good choice to help you reach financial goals like paying down debt, remodeling your kitchen, or affording a vacation. In fact, over 2 million people reached their goals with the help of a Discover® personal loan.

“Discover makes this very seamless and easy for you to accomplish your goals,” one customer explained in July 2023. “This is my 3rd personal loan and I wouldn’t use anyone else.”

If you have good credit and a strong financial history, a personal loan may be a good type of installment loan for you. With a personal loan you get a lump sum and can use it to pay for a variety of expenses, including home improvements, and medical costs, which may come in handy.

What’s the difference between an installment loan and a line of credit?

A personal line of credit gives you a maximum loan amount that you can pay off and then repeatedly borrow against. This revolving credit account might also carry a variable interest rate, which means the amount of interest charged could change over time.

In comparison, an installment loan tends to offer a fixed interest rate that doesn’t change for the life of the loan. That means you can know in advance how much the total cost of borrowing will be. Further, the money from an installment loan is given in one lump sum.

Another key difference between an installment loan and a line of credit is the amount of time (or loan repayment term) you have to pay back the funds you borrowed. With an installment loan, you will know precisely when the loan will be repaid. With a line of credit, the amount you borrow (within your limit) and how much you pay back each month may fluctuate over time.

What are the repayment terms and interest rates of installment loans?

With a personal installment loan, you may be able to choose from a range of repayment terms based on your preferred monthly payments, or the date by which you aim to pay the loan off.

At Discover Personal Loans, for example, you can choose how long you’d like to repay your loan—from 36 up to 84 months. During that period, the balance of the personal loan is paid back in set regular monthly payments.

For example, if you get approved for an $18,000 loan at 12.99% APR for a term of 72 months, you'll pay just $361 per month. Other types of loans may be shorter or longer. Plus the money can be sent as early as the next business day after you accept the terms of your loan.

As with most loans, your interest rate will depend on your credit score, your credit history, and the loan term.

What are other examples of installment loans?

Some additional installment loans include:

  • Auto loans – Auto loans are secured installment loans that are repaid over a fixed number of years, usually from 24 to 84 months.1 If payments are not made, the lender has the right to repossess the automobile.
  • Mortgages – A mortgage is a loan that is used to purchase a house. Payments typically extend from 10 to 30 years and can be structured as variable or fixed-rate loans. Like an auto loan, if payments are not made, the lender has the right to repossess the property, based on the details laid out in your loan agreement.
  • Student loans – Student loans are used to pay for post-secondary education and sometimes even K-12 education. They are 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 a financing option offered at checkout by some retailers. The customer makes an initial payment at time of purchase and the loan then allows the customer to pay off the remaining balance over a number of fixed payments.2
  • Payday loans – A payday loan is typically a short-term loan of $500 or less intended to provide funds until your next paycheck. While it usually does not require a credit check, it often comes with fees or finance charges.3

Will applying for a personal installment loan affect my credit score?

With a Discover personal loan, you can see what your loan rate and learn payment might be before you apply, all without impacting your credit score. If you choose to continue and submit a full application, only then will we conduct a hard credit pull to make a final decision. A hard credit pull can affect your credit score.

See how a personal installment oan can help you pay for life's expenses.

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Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

1 https://www.caranddriver.com/auto-loans/a31758321/average-car-loan-length/
2 https://www.nerdwallet.com/article/loans/personal-loans/buy-now-pay-later#:~:text=Buy%20now%2C%20pay%20later%2C%20or,purchase%20is%20paid%20in%20full
3 https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/