Installment loans are a form of credit that allows you to borrow a fixed amount of money and then pay it back over time. Installment loans set themselves apart from credit card loans with vastly superior interest rates. The catch is that you must have decent credit in order to qualify for an installment loan. If you qualify, there are many different options available to you. Below, we will cover the most popular installment loan options and highlight the best lenders for a variety situations.
How Do Installment Loans Work?
Installment loans use fixed interest rates and fixed monthly payments, which makes it convenient for borrowers who know exactly how much they owe and when the loan will be complete. For example, if you borrowed $40,000 at an 8.99% APR with a 60-month term, you would pay $830 per month over five years.
What Should I Use an Installment Loan For?
You can use an installment loan for anything you’d like. Typically, installment loans are used for home remodeling expenses, which can increase the value of your home while increasing your quality of life, for debt consolidation, and for emergency expenses, such as a hospital bill.
Types of Installment Loans
There are many different types of installment loans, but three of the most common are personal loans, auto loans, and a mortgages.
Should You Use an Installment Loan?
Before considering an installment loan, you should know what type of rate you can qualify for, your chances of qualifying, and whether you can afford the loan long term. The first step you should take is checking your credit score. An app like CreditKarma is ideal for keeping track of your score and improving it over time. If you have good to excellent credit, you should qualify for most installment loans at a decent interest rate. The higher your score, the lower the interest rate you will be able to qualify for.
Consider your monthly income and expenses. An app like Mint can be perfect for understanding how much money is coming in and going out each month. Determine what your typical discretionary income is each month to determine how much you can afford on a monthly loan payment. Do not borrow more than you need, and do not borrow an amount that might be difficult to pay off from month to month. Once you have determined the amount you need to borrow and the amount you can afford each month, now it’s time to compare lenders.
Best Installment Loans of 2020
Below, we will go over the best installment loans for a variety of situations. We’ll cover the best installment loans for good, fair, and bad credit, as well as for large amounts, debt consolidation, and peer-to-peer loans. The following lenders will be highlighted:
- Marcus by Goldman Sachs
Best Installment Loan for Good Credit: Marcus by Goldman Sachs
There are many benefits to using Marcus by Goldman Sachs. They offer competitive interest rates, and you can lower your rate by 0.25% just for signing up for autopay. There are also no fees for signing up, paying your loan down before the term date, or any miscellaneous fees. The only downsides are no co-signers are allowed, and there are no specific eligibility requirements, so it’s hard to know upfront what you can qualify for.
Marcus by Goldman Sachs allows you to borrow $3,500 up to a maximum of $40,000 with a loan term of three to six years. The estimated interest rate on your loan should range between 6.99% and 19.99% depending on your credit. While Marcus does not list a minimum credit score requirement, it is estimated that you would need a score of at least 660 to qualify for a loan.
Best Installment Loan for Fair Credit: Upstart
Upstart has a minimum credit score requirement of 600, but they also have a maximum estimated interest rate of 35.99%. If you have fair to good credit, however, you can lower that interest rate down to around 8%. Upstart allows you to borrow between $1,000 and $50,000 with a loan term of three to five years. One of the downsides of Upstart is that origination fees can be as high as 8% of your loan amount.
Best Installment Loan for Bad Credit: Avant
Avant will give loans to borrowers with credit scores as low as 580. However, the estimated interest rate for those with bad credit reaches up to 35.99%. You can borrow as much as $35,000 down to $2,000 with a repayment term of two to five years.
Best Installment Loan for Large Amounts: LightStream
Along with SoFi, LightStream will lend up to $100,000 and down to $5,000. But the difference between LightStream and Sofi is that LightStream can offer interest rates as low as 3.49%. Their estimated interest rates can go as high as 19.99%, which is just slightly above the rate of 18.72% that you can get at the high end from SoFi. The minimum credit score is also slightly lower for LightStream, at 660 compared to 680 with SoFi.
Best Installment Loan for Debt Consolidation: Payoff
If you are looking to consolidate your credit card debt, Payoff could be a perfect choice. The online lender has interest rates that start as low as 5.99%, and there are no late fees, prepayment fees, or application fees. There is, however, an origination fee that can reach 5%. The minimum credit score required for a Payoff loan is 680, and the highest estimated interest rate that you would have to pay is 24.99%. Payoff also allows you to borrow between $5,000 and $35,000.
Best Peer-to-Peer Installment Loan: LendingClub
Peer-to-peer lending means that you receive your loan from an individual rather than from a bank. LendingClub is notable for its easy prequalification process that does not require a hard inquiry on your credit report, which will keep your score higher. You can borrow with LendingClub for any reason at all, and your loan can be between $1,000 and $40,000. The minimum credit score is also relatively low for LendingClub at 600. Interest rates can range from as low as 10% to as high as 36%.