If you’re in the market for a personal loan — also called an installment loan — in 2022, expect to pay a higher interest rate than you would for a mortgage or auto loan.
At the beginning of 2022, personal loan rates averaged a little more than 10%. That’s still better than the average interest rate of a credit card, which WalletHub estimates at more than 18%.
In this article, we’ve highlighted the best installment loans available on the market, prioritizing those installment loans that had low annual percentage rates (APRs), affordable monthly payments, low credit score thresholds and flexible loan amounts and repayment terms.
What Is an Installment Loan?
At a high level, an installment loan is a lump sum of cash that you borrow from a lender for a specific project or opportunity, with clear stipulations for paying back that money, plus interest, over a set amount of time.
In that way, auto loans, mortgages and student loans are considered installment loans, but lenders typically offer specific programs for those kinds of loans. Instead, most borrowers equate installment loans with personal loans for things like home renovations, a wedding, an emergency or even debt consolidation.
Installment loans differ from credit cards (a form of revolving credit) in that you borrow a specific, one-time amount from the lender and agree upon a payoff term, meaning you will have set monthly payments (or installments) of a predictable amount until you have paid off the loan amount in full.
Though each loan is different, typical terms range from 12 months to 96 months — that’s one to eight years.
Let’s weigh the pros and cons of installment loans with Marcus by Goldman Sachs:
Final Thoughts: Marcus by Goldman Sachs is our top choice for personal installment loans. While it caters to borrowers with stronger credit scores, its lack of fees, rewards for on-time payments and low APRs make it ideal for everything from home improvement loans to debt consolidation loans. We just wish the max loan amount was a little higher.
Let’s weigh the pros and cons of installment loans with SoFi:
Let’s weigh the pros and cons of installment loans with LightStream:
Final Thoughts: LightStream has the lowest APR of any of the online installment loans on our list, which makes it worth consideration for anyone shopping for an installment loan. While LightStream is good for debt consolidation and major renovations, it’s also a great option for emergencies since they offer same-day funding.
Let’s weigh the pros and cons of installment loans with PenFed Credit Union:
Final Thoughts: While you’ve got to join the credit union to be eligible for the loan, that’s not a bad thing. An online bank account may offer the best features, but compared to brick-and-mortar banks, credit unions more often offer better rates and features.
Let’s weigh the pros and cons of installment loans with Upgrade:
Let’s weigh the pros and cons of installment loans with LendingClub:
Final Thoughts: LendingClub does a few things right, like its small loan amount options and low credit score requirement. But be aware of its high APR range, stiff loan term options and high fees and long funding period.
Let’s weigh the pros and cons of installment loans with Best Egg:
Final Thoughts: What Best Egg does really well is take care of its customers. Whether through strong customer support or inclusive communication efforts, something has struck a nerve with their customers. For many, that makes up for less than favorable loan terms, an only moderately sized max loan amount, potentially high APR and long funding period.
Let’s weigh the pros and cons of installment loans with Upstart:
Final Thoughts: Hands down, Upstart offers the best bad credit installment loans, allowing borrowers with scores as low as 300 — or no credit report at all. Unfortunately for those borrowers, who don’t have many options, that means high APR and plenty of fees.
Let’s weigh the pros and cons of installment loans with Avant:
Final Thoughts: Avant’s mobile app is its saving grace, but in terms of APR, fees and flexible loan terms, it can’t compete with some of our top-of-the-list options. Avant does, at least, cater to borrowers with poor or fair credit, making it one of the better installment loans for bad credit.
Types of Installment Loans
While those shopping for installment loans are typically looking for personal loans, installment loans technically refer to a fixed-interest rate loan with regular monthly payments. In that way, auto loans, mortgages and student loans are also considered installment loans.
Unlike typical personal loans, vehicle loans and home loans, student loans often have a variable interest rate. Payments can change over time, based on your income, family size and other factors.
Auto and home loans are considered secured loans, meaning they require collateral. Because personal loans, which are unsecured loans, do not require collateral, interest rates are higher.
3 Reasons for Getting a Personal Installment Loan
While you can get a personal loan for anything, like a vacation or a wedding, taking on debt with such a high interest rate should be done cautiously. We recommend taking out a personal loan only if you already have flexibility in your monthly budget to handle the additional monthly installment payments at your current income.
There are three main scenarios for which we consider taking out a personal loan:
1. For a Relatively Safe Long-Term Investment
Renovating your home, whether it’s a small project or complete home makeover, is expensive, but we can usually expect to get out more than we put into our homes, if the market is decent.
You have multiple options for financing major renovations, including refinancing your mortgage; taking out a home equity line of credit (HELOC), which is a secured loan; or taking out a home equity loan. But while you’re weighing out your options, you can also consider a personal loan for home repair or home improvement. Just be sure that whatever you’re putting into the home, plus the interest you’ll pay on the loan, is less than what you’ll get out of the house when you sell it.
You might also consider an unsecured loan if you are launching your own small business but can’t qualify for a traditional business loan.
2. To Consolidate your debt
If you are drowning in credit card debt on multiple cards — and struggling with their varying due dates, minimum payment amounts and APRs — taking out a fixed-rate personal loan with a monthly installment plan to pay off those credit cards can be a wise idea. Typically, the interest rate on such an installment loan will be lower than any of the credit cards you’re juggling, and you’ll only have one monthly due date to juggle.
3. In an Emergency
According to a 2021 survey by SSRS Omnibus, more than half of Americans have less than three months’ worth of emergency savings in their bank accounts — while many experts say we need double that. If you find yourself faced with an emergency medical bill or suddenly in need of cash, a personal loan might be your best bet.
If you can get access to one quickly, preferably the same day, an installment loan is a better idea than racking up credit card debt in these scenarios.
How to Get the Best Installment Loan
When looking for a personal loan, always review multiple options. However, you want to avoid having too many lenders pull your credit, as multiple hard inquiries can have a (temporary) negative effect on your score.
That’s why it’s important to skim rankings of the best installment loans, like we’ve provided above. This allows you to compare multiple options without actually applying. Just note that your particular situation might yield different results from what we reviewed above.
Key elements of the best installment loan include:
- Lack of fees (no origination fee, no prepayment penalties and no late fees)
- Low APRs
- Flexibility around loan amount and loan terms
- Options for fair credit or bad credit
- Bonus features, like on-time payment rewards and unemployment protection
If you are looking specifically for loans for bad credit, lower your expectations around fees, APRs and flexibility. But if at all possible, do not humor a payday loan — a predatory loan that takes advantage of borrowers with bad or fair credit in emergency situations.
Some lenders only consider your credit score when making an approval decision, but other lenders may consider elements like debt-to-income ratio, assets and payment history.
Where to Get an Installment Loan
When shopping for installment loans, you can consider banks, credit unions and online lenders. Keep all of these options in mind when trying to find the best installment loan, prioritizing the lowest rates, the most affordable monthly payments and the best terms and features for your scenario.
If you already belong to a national bank, start your search here. Valued customers at larger banks can often get lower rates just for having active checking or savings accounts or other loan products.
Similarly, if you are a member of a specific credit union, you can likely qualify for a reduced rate on your unsecured personal loan. Even if you don’t belong to a credit union, consider getting your installment loan from one. Federal credit unions are capped at 18% APR for personal loans; even at the maximum, that’s lower than the average credit card APY.
The nice thing about some (not all) online lenders is that they allow you to pre-qualify before you apply. This enables you to review multiple online lenders without a hard inquiry on your credit.
Borrowers with bad credit scores will have more luck with online lenders than at banks and credit unions. However, be cautious: Though online lenders do cater to those with bad credit scores, the resulting interest rate can be incredibly high.
How Installment Loans Affect Your Credit Score
As mentioned above, applying for any kind of loan, including a personal loan, will result in a hard inquiry. This temporarily lowers your credit score, but it’s such a small factor in the grand scheme of things — and just a necessary evil of the loan process — that you shouldn’t sweat it too much.
But can installment loans affect your credit score in positive ways? Yes — if you make your payments on time. Credit bureaus love to see a long history of on-time payments, so the longer you have the installment loan account open with on-time payments, the higher your score will climb. When you eventually pay off the loan, you might see a nice bump in your score as well; credit bureaus also look for evidence that you can pay debt to completion.
Frequently Asked Questions (FAQs) About Installment Loans
Still have questions about installment loans? We’ve taken the most common questions readers are asking and provided some quick answers. See if we’ve addressed your question below:
Timothy Moore covers banking and investing for The Penny Hoarder from his home base in Cincinnati. He has worked in editing and graphic design for a marketing agency, a global research firm and a major print publication. He covers a variety of other topics, including insurance, taxes, retirement and budgeting and has worked in the field since 2012.