When shopping for an installment loan, finding the lowest APR is important, but there are other factors to watch out for as well. For example, different lenders have different loan minimums and maximums. Make sure your loan application meets the loan limits.
Also look at the tenure. Would you like a longer term that allows you lower payments? Next, look for seven- to 12-year loan programs, the longest terms you’ll find. Finally, check for listing or setup fees, prepayment fees, late fees, and bounce fees. Not all lenders have these fees. In fact, a few on our list don’t, like Goldman Sachs’ Marcus and SoFi.
Frequently Asked Questions
Is an installment loan hurting your credit?
Installment loans don’t hurt your credit, as long as you make your monthly payments on time. According Experian, each loan on your credit file gives you a stronger credit history. Making payments on time will help your credit score because it shows you can manage your debts responsibly.
Before you get too excited, though, understand that they won’t boost your score instantly, or by much. When a lender pulls your credit report, you will likely see an initial drop in your score of a few points, and the increase debt to income ratio can also drop your extra point score initially. So increasing your score with installment loan payments can take several months.
Which is better: a payday loan or an installment loan?
An installment loan will almost always have better terms for the borrower than a payday loan. While installment loans are paid off over time in smaller monthly installments, payday loans are usually paid off in one lump sum payment.
Installment loans also lend larger sums of money than payday loans and have lower fees and interest rates. Payday loans should be reserved for last-resort scenarios when you face a short-term cash crunch between paychecks.
What happens if you pay off an installment loan early?
According to InCharge Debt Solutions, a 501(c)(3) nonprofit credit counseling organization and member of the National Credit Counseling Foundationthe best reason to pay off an installment loan early is to save on interest payments. The longer you make your payments on time, the more interest you’ll pay in total over time.
But paying off an installment loan early may not improve your credit score. The credit bureaus prefer to see that you have several open and aged accounts, which you pay on time. Paying off your loan early closes that loan on your report. A caveat to this is that if your credit score is struggling because you have a high debt-to-income ratio, you could benefit from paying off some of your debt as soon as possible.
Make sure your installment loan does not have prepayment penalties. This type of fee is designed so that the lender can capture future interest that they will lose if you repay your loan early.
How we choose the best installment loans
We’ve researched 12 installment loan providers and rated each based on the lender’s business history and customer reviews to give you a picture of their reliability. We dug into the details of their loan terms, including rates, terms, and terms, to better understand their pros and cons. Then, to better understand their costs, we found out if they had set-up or listing fees or prepayment penalties.
Finally, we explained how you can qualify for their installment loans, what limits they may have, and what additional benefits they offer to complement their loan service.