Installment Credit 101: What Is It and How Do You Get It?

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What is installment credit?
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When it comes to borrowing money, you have a lot of options. Some loans are created for a specific purpose, such as auto loans and mortgages. Others, including credit cards, give you more freedom in how you spend and even let you borrow money on a rolling basis.

Credit typically falls into one of two buckets: installment credit and revolving credit. Here’s a look at key differences between these two types, and what you need to know about applying and qualifying for installment credit.

What is installment credit?

Installment credit is a form of debt that has a set amount and payment period. Common forms of installment credit include mortgages, car loans, personal loans, and student loans.

When applying for installment credit (a.k.a. an installment loan), you’ll typically review the following terms:

  • Principal loan amount
  • Interest rate (fixed or variable)
  • Term length
  • Monthly payment
  • Origination and other fees

Note that despite their similarities to other types of loans, payday loans do not fall into this category. This is because the lender usually requires that you pay back the loan in full after a short period, rather than in installments.

Key differences between installment credit and revolving credit

Installment credit works like this: Say you want to buy a car, fund your wedding, or cover another large expense. You can go to a bank and request a loan. In this case, assume you borrow $20,000 and promise to pay it back over six years with an interest rate of 3.99% APR.

For the length of your loan, you will have a monthly payment of $312.81. When you finish paying off your loan, you will have paid $2,522.50 in interest.

When it comes to revolving credit, think about how credit cards work. Most credit cards have a credit limit, which caps how much money you can owe at any given time. As long as you don’t reach your credit limit, you can keep borrowing money from the bank by using your credit card and paying the balance at the end of each month.

Further, on a credit card, your monthly payment is based on your current balance and there’s no predetermined payoff period. So you can keep borrowing money without having to go to the bank.

How to get an installment loan

Different types of installment loans have different credit and income requirements. But in general, the better your credit, the better chances you have at getting approved with a good interest rate.

If you’re not sure what your credit score is, you can check it for free, such as through AnnualCreditReport.com.

Experian, a major credit bureau, lists the different FICO credit score ranges as follows:

  • Exceptional: 800+
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 579 and below

If your credit score isn’t at least in the good range, you may still get approved for installment credit. However, you might not necessarily get a favorable interest rate.

To improve your credit score, review your credit report to see what needs work. Dispute errors you find and ensure all listed credit accounts are in good standing.

Your credit score isn’t the only factor lenders will consider, however. If you have high credit card balances or a lot of other debt, your debt-to-income ratio might be high. A high debt-to-income ratio can scare off lenders because they might think you can’t pay back all your debt.

Where to get an installment loan

The easiest way to get installment credit is through your local bank or credit union. Depending on your needs, though, you might want to shop around to get the best deal. You can find a good selection of personal loans online. And if you’re applying for a mortgage, a broker can give you more options.

If you’re buying a car, you can get an installment loan through your bank directly or through the dealership where you’re buying the car. Unlike your bank, the dealership can reach out to multiple lenders to find the best rate for you.

Make sure to read the fine print on an installment loan before signing. There, you’ll find any hidden costs or conditions. For example, some loans penalize you if you pay off the loan early. You’ll also want to understand what happens if you’re late on a payment or default.

How installment credit affects your overall credit

According to FICO, your payment history is the most important factor in your credit score. As you make on-time payments, the lender reports that information to the three major credit bureaus: Equifax, Experian, and Transunion.

If you’re not careful, though, an installment loan can hurt your credit. Making late payments or defaulting on your loan, for example, will negatively impact your score.

If you borrow too much, the debt burden can also weigh on your credit score. How much you owe is the second most important factor in your credit score. Be sure to borrow only what you can easily afford to repay. Putting too much of your income toward debt will strain you financially and make it easier to start slipping on payments.

Should you get an installment loan?

Installment credit is a common way to get the funds to buy something you need. But if you don’t have stellar credit or already have a lot of debt, you might not get approved for more. Before applying, work to build your credit and pay off your other debt first.

If you do it right, an installment loan can help you reach your financial goals. But sacrificing your financial security with high interest rates and a large debt load isn’t worth it.

Before applying for installment credit, take stock of your financial well-being and needs. Make a decision based on facts rather than emotions. You’ll be much better for it in the long run.

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
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  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

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Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

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