When consumers need to borrow money, they have two main options: revolving credit or an installment loan. Each type of lending product has its own set of pros and cons.
Revolving credit lines, like credit cards, can be a good way to pay for smaller loan amounts that you plan to repay in a short period of time. But if you want to borrow a large amount of money and would like to repay it over a longer period, an installment loan will be a better fit.
Here's what you need to know about installment loans.
Definition of an installment loan
An installment loan, also known as installment debt, is a specific amount of borrowed money that is paid back through monthly payments over time. Installment loans can be either secured (requiring you to put up collateral such as your home or automobile) or unsecured (which you can get based solely on your creditworthiness.)
Several of the loans that consumers are most familiar with are installment loans. Here are a few installment loan examples:
- Mortgages
- Auto loans
- Personal loans
- Student loans
Other common examples of installment loans include point-of-sale financing offers and "no credit check" emergency loans.
How installment loans work
The loan application process
You can apply for an installment loan with just about any bank or credit union. You can also look at online personal loan lenders like Lightstream, SoFi, Avant, and others.
In some cases, you may be able to take out an installment loan directly from the company that you're buying a product from, like your auto dealership or furniture financing from your local furniture store.
Finally, borrowers can take out short-term emergency installment loans. Payday lending stores are some of the most notorious places for borrowers to get emergency cash. Payday loans can be incredibly expensive, often charging interest rates of 400% or more.
Interest rates and repayment terms
The first thing you'll want to look at with an installment loan is the interest rate you're being offered. Be sure to check whether the rate is fixed or variable. Interest rates can be fixed or variable, and interest is included in the monthly payments. The amount of time it takes to pay off the loan completely (the term) can range from a few months to 30 years.
You may be able to get a lower initial rate with a variable-rate loan, but that rate could also go up over time. If you plan to pay back your loan quickly, a variable-rate installment loan could save you money. But if you'll be in repayment for several years, locking in your interest rate with a fixed-rate loan may be the best way to go.
If you need emergency cash, consider applying for a Payday Alternative Loan (PAL) with your local credit union first. PALs cap interest rates at 28% and never charge more than $20 in fees.
Calculating monthly payments
While installment loans have fixed monthly payments, most lenders will allow you to pay extra whenever you'd like. By paying your loan off earlier than agreed, you could cut out several months or years of loan interest. In general, the longer the term, the more interest you'll pay. But a longer term will also typically mean lower payments. If you're looking to save the most money overall, try picking a shorter term. But if monthly cash flow is your top priority, a longer term could make sense.
Next, check to see what origination fees (if any) the lender charges. Oftentimes, origination fees are a set percentage of the loan amount. But short-term loans may charge a flat fee instead. Shop around to try to find direct installment loan lenders that charge reasonable fees, or preferably none at all.
Installment loans pros and cons
Benefits of installment loans
If you like the idea of being able to know exactly when your loan will be paid off, an installment loan could be a great fit. And since they typically come with predictable monthly payments, installment loans can be easier to budget for.
Potential drawbacks
However, flexibility is one area where installment loans fall short. Once the funds have been disbursed, you can't borrow any more from an installment loan. So, if you're not sure exactly how much money you'll need, a revolving line of credit may be a better option.
Popular installment loan options
LightStream Personal Loan
LightStream offers some of the best personal loans for anyone with good to excellent credit. The lender offers generous loan amounts ranging from $5,000 to $100,000 with competitive APRs from 6.49% to 25.29% (with AutoPay discount, rates vary by loan purpose). Term lengths from LightStream range from two to 12 years, depending on the type of loan.
You also won't have to worry about paying any fees with an installment loan from LightStream. However, LightStream doesn't give you the option to prequalify for a new loan.
Read our LightStream Personal Loan review.
Best Egg Personal Loan
Best Egg is a solid option for a fast funding personal loan. In fact, the lender claims that about half of its customers receive their money the next day. Best Egg has installment loans ranging from $2,000 to $50,000, with APRs from 6.99% to 35.99%. You can repay a Best Egg loan within three to five years.
However, this lender charges high origination fees and doesn't service loans in every state. If you live in Iowa, Vermont, West Virginia, or Washington, D.C., then you won't be eligible to get a loan from Best Egg.
Read our Best Egg Personal Loan review.
SoFi® Personal Loan
You can get an installment loan from SoFi for between $5,000 to $100,000 without having to pay any fees. SoFi requires a minimum credit score in the mid-600s to qualify for a loan. Term lengths from SoFi range from two to seven years.
SoFi has interest rates ranging from 8.74% to 35.49% fixed (with all discounts). Additionally, most borrowers receive their funds within the same business day.
Read our SoFi Personal Loan review.
Avant Personal Loan
Avant is one of our top direct installment loan lenders for personal loans for bad credit. The lender has a minimum credit score requirement of 550. You can get loans ranging from $2,000 to $35,000, with terms between two and five years.
Avant does charge several fees, such as up to 4.75% in administration fees with an undisclosed late fee and returned payment fee. APRs from Avant range from 9.95% to 35.99%.
Read our Avant Personal Loan review.
How to save money on an installment loan
The interest rate that you're offered on an installment loan will be based, in part, on your credit score. So, improving your credit score before you apply is one of the best ways to save money on an installment loan.
How can you improve your credit score? Making on-time payments on all your credit accounts is a great start. And lowering your credit utilization rate could give your score a quick boost as well. Also, periodically check your credit report for mistakes. If you find any, be sure to fix them before you apply for an installment loan. You can also look at the best loans for fair credit to find an option suited to your credit now while you work to improve it.
Another potential way to qualify for better rates on installment loans is to improve your debt-to-income ratio. For example, paying down your credit cards or paying off your auto loan before you apply for a mortgage could make a difference in what rate you're offered.
Check rates
FAQs about installment loans
Can I pay off an installment loan early?
Yes, many direct installment loan lenders let you pay them off early, but it's important to check if your lender charges a prepayment penalty, as this could affect the total cost of your loan.
What determines the interest rate on an installment loan?
Interest rates on installment loans are determined by your credit score, loan amount, loan term, and the lender's policies. Generally, a higher credit score can help you secure a lower interest rate.
Are there any installment loans that don't require a credit check?
Most lenders perform a credit check before issuing an installment loan to assess creditworthiness. Some lenders place less emphasis on credit scores, though they typically come with higher interest rates.
How does an installment loan affect my credit score?
An installment loan can impact your credit score in several ways. Timely payments can help improve your credit score, while late payments can lower it. Additionally, the loan application process may result in a hard inquiry, which can temporarily reduce your credit score.
Is there a difference between secured and unsecured installment loans?
Secured installment loans require collateral, like a car or home, which the lender can seize if you default on the loan. Unsecured loans require no collateral, but typically have higher interest rates due to the increased risk.
Fixed rates from 8.74% to 35.49% APR. APR reflects the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi Platform personal loans are made either by SoFi Bank, N.A. or , Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 08/08/25 and are subject to change without notice. Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. 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, income, and other factors. Loan amounts range from $5,000— $100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 9.99% of your loan amount for Cross River Bank originated loans which will be deducted from any loan proceeds you receive and for SoFi Bank originated loans have an origination fee of 0%-7%, will be deducted from any loan proceeds you receive.
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. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: To be eligible to receive an additional (0.25%) interest rate reduction on your Personal Loan (your "Loan"), you must set up Direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A., or enroll in SoFi Plus by paying the SoFi Plus Subscription Fee, all within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled Direct Deposit to an eligible Direct Deposit Account in accordance with SoFi's reasonable procedures and requirements to be determined at SoFi's sole discretion, or during periods in which SoFi successfully receives payment of the SoFi Plus Subscription Fee. This discount will be lost during periods in which SoFi determines you have turned off Direct Deposit to your Checking and Savings account or in which you have not paid for the SoFi Plus Subscription Fee. You are not required to enroll in Direct Deposit or to pay the SoFi Plus Subscription Fee to receive a Loan.
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 other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2024 was around $33K. Information current as of 11/03/25. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.
