What Is An Installment Loan and What Are They Used for?

A woman studies her phone, recognizing the potential impact of an installment loan on her life, as she discovers the option to apply for an installment loan through Integra Credit.

Post Written by: Integra Credit | March 31 2023

Whether you're looking to consolidate credit card debt or finance a large purchase, an installment loan may offer you the resources and flexibility you desire. It can be a real game changer, allowing you to receive a lump sum of cash and pay it back in smaller bits over time. Let's take a closer look at the installment loan.

What Is an Installment Loan?

Also referred to as installment credit, installment loans are a type of closed-ended credit product where you borrow a specific amount, such as $3,000. You will receive the entire $3,000 upfront. Then, you will repay the principal ($3,000) plus interest over an established time frame. The repayment period is the term. Many installment loans have flexible terms, meaning you can choose anywhere from a 6-month term to a few years — depending on the type of installment loan, your financial profile, the amount of the loan, and other factors. With an installment loan, you can get the cash you need upfront and repay the principal and interest in smaller, more manageable payments stretched out over a period of time.

Installment Loan vs Revolving Line of Credit

One popular alternative to an installment loan is the revolving line of credit account, such as a credit card. Credit cards or revolving accounts are open-ended accounts that you can continuously use and pay down the balance as long as your account is in good standing and open. In contrast to a line of credit, the installment loan is a closed-ended product with a definitive date the account will be closed.

What Can You Use an Installment Loan For?

Installment loans are flexible and can be used for just about any and everything, such as

Debt consolidation

Emergency expenses

Cover car expenses

Purchase home appliances

Make home repairs

Different Kinds of Installment Loans

Installment loans can be categorized into two broad groups:

Secured installment loans —or collateralized loans— have an asset attached, such as a mortgage where the collateral is the house. Another popular type of secured installment loan is an automotive loan — where the automobile is the asset securing the loan.

Unsecured installment loans — or uncollateralized loans — are issued without real or physical collateral. Most unsecured installment loans are issued based on your creditworthiness and ability to repay the loan.

In general, unsecured installment loans have higher interest rates than secured loans. This higher interest rate reflects the higher level of risk the lender assumes. A few common types of installment loans are explained below.

Mortgages

The largest class of consumer debt, Mortgages are installment loans designed for the purchase of a home. There are many types of mortgages, but the most common have 15 to 30-year terms.

Student Loans

Student loans are unsecured loans designed to help you pay for undergraduate, graduate, and post-secondary education. Many student loans do not require repayment until after you graduate. Amid the rising cost of education, student loans have become the second-largest class of consumer debt.

Personal Installment Loans

Personal loans can be used for a vast range of expenses and purposes. For the most part, you can use a personal loan for whatever you decide, including debt consolidation. With repayment terms ranging from 6 months up to 60 months, personal loans are very flexible.

Automotive Loans

Auto loans are a popular type of installment loan. Debt from auto loans makes up about 9.2% of American consumer debt.

Buy-Now, Pay-Later Installment Loans

One new, emerging type of installment loan is the buy-now, pay-later (BNPL) loan. Also called point-of-sale financing, these installment loans allow you to purchase goods today and spread the payments out over a few installments. The repayment period can range from a few weeks to years — based on the lender.

Where Can I Get an Installment Loan?

Whether it's a bank, credit union, retailer, or individual finance company, there are many places to get an installment loan. You can even get an installment loan with "fair" or "poor" credit.

What's the Fastest Way to Get an Installment Loan?

If you're looking for the fastest way to get an installment loan, consider using an online lender. Online lenders can offer virtually instant approval, and many consumers find the application process easier than a traditional bank. While many online lenders offer funding as soon as the next day*, banks may require you to wait several days for approval for the loan to be funded.

Installment Loan Frequently Asked Questions

Can I Repay An Installment Loan Early?

Whether you can repay an installment loan early without penalty will depend on your lender, so you should read the fine print closely. This is a great question to ask when researching where to get a loan from.

Can Someone With Bad Credit Get An Installment Loan?

People with poor credit do still have an opportunity to get installment loans. Some loans are designed for borrowers with poor credit; loans like personal installment loans, car title loans, pawn shop loans, and payday loans.

What Kinds of Loans Qualify As Installment Loans?

An installment loan is a loan that will be paid back in installments usually also with an interest rate on the amount borrowed. Different types of installment loans you could qualify for are auto loans, mortgage loans, personal loans, and student loans.

Apply for an Installment Loan through Integra Credit

Integra Credit offers a fast and hassle-free application that you can complete in minutes and receive almost instant approval. Best of all, customers who are approved can receive their installment loan funds as soon as the next business day*. Apply now.