When there is a pressing need for more cash than you have on hand, the solution is easy – borrow. Even with a poor FICO score, many lenders still offer installment loans for bad credit.
Borrowing money is a double-edged sword. The worst thing that can occur to anyone is falling into a spiral of debts. Now, the key to avoiding the debt trap is to have a rudimentary financial understanding. Even more important is to avoid unnecessary expenses.
On the other hand, if the loan amount is reasonable and within your means, it can be a plus. Besides consolidating debts, buying a house or car, you can also use the money to make more money.
What Are Installment Loans?
Most people have not heard of or are not familiar with the term installment loan. Even so, most of them have used this facility without being aware. In simple terms, this is money borrowed from financial institutions. The borrower pays back the parts of the loan, including interest, monthly.
Sometimes, people interchange installment loans with amortization loans. For practical reasons and simplicity, this practice is acceptable. By definition, though, these two terms are not the same.
Installment loans vs. Amortization Loans
Each month, for one year, you make affordable monthly payments or installments. It is the reason why these types of loans came to be called monthly installment loans.
An amortization, on the other hand, describes the process of payments. In other words, it refers to the act of making monthly installments. The lending company, in this case, makes an amortization or repayment schedule. It is the computation of how much and when you are to pay each month.
Types of Loan Rates
The two common types of interest rates for loans are variable and fixed.
1. Variable Rates
In this scheme, the interest rate varies, which may increase or decrease at any time during the loan term. Usually, it is the fluctuating market that determines the interest rate.
Variable rates can be risky. If the rates increase, so does the interest. But then again, it can also be favorable when the rate decreases.
2. Fixed Rates
In most circumstances, fixed rates are safer than variable rates. At least, that is the impression of most people. Usually, it is the prevailing interest rate upon loan approval that determines the fixed rate.
Fixed rates are unaffected by market rates. Hence, it takes away the risk of paying more when interest rates increase. The flip side, however, is that you cannot take advantage of lower interest rates.
Types of Installment Loans
Installment loans may or may not require you to put up collateral.
These loans require you to put up something of value, such as a property or a car, as collateral. Because there is a lower risk on the lender’s part, it is easier to get loan approval. But if you cannot repay the loan, the lender can seize the collateral.
For these loans, you do not have to put up collateral. Getting approved can be challenging, though, as lenders favor those with good credit scores. Because there is more risk, the interest rates are usually higher than secured loans.
Common Installment Loans
There are all sorts of installment loans. These are the most common ones availed by most people.
1. Personal Loans
A personal loan lets you receive a one-time payment of cash. Most borrowers use it to consolidate debts or to refinance high-interest credit cards. It is, indeed, versatile in that you can use it for almost anything. Some lenders, however, cannot legally let you use a personal installment loan to pay off student loans.
Related: What is a Benefit of Obtaining a Personal Loan?
2. Student Loans
These loans exist to help you pay for the cost of attending college. Student loans can pay for tuition, books, and school supplies. You can also use it for other expenses associated with your education – room, transportation, and more.
3. Mortgage Loans
Mortgages are loans sanctioned against immovable assets such as houses or commercial properties. The property bought or refinanced becomes the collateral. In case of default on payments, lenders have the right to seize the property.
4. Auto Loans
Auto or car loans are precisely that – a type of loan used to buy a brand new or second-hand vehicle. Like others, you pay back the principal and interest in monthly installments.
5. Payday Loans
Unlike other loans, which have long terms, payday is short-term. It can also be called check advance or cash advance. One drawback to this loan is that it comes with super high-interest rates.
Annual Percentage Rate (APR) vs Interest Rate
APR is a term you must have seen as you compare loan rates and lenders offering guaranteed installment loans for bad credit. No, it is not the same as an interest rate. Although they share similarities, it is how they differ that can help you find the best deal.
The interest rate refers to the cost of borrowing money (the principal). On the other hand, the APR measures the interest rate plus additional fees for taking out the loan. For this reason, the APR should always be higher than the advertised interest rate.
For a more accurate comparison, you should focus on the APR because it already includes other fees you need to pay. It is unlikely for lending companies to exclude some fees (that they will charge to you) to keep their APR lower. That is because they need to conform to the stipulations of the Federal Truth in Lending Act (TILA) of 1968.
8 Best Bad Credit Installment Loan Lenders
Here are the most reliable installment loan lenders for bad credit you can try. Note that all of them offer a diverse range of APRs. The best way to know which company can provide you with the best deal is to ask each of them for a quotation. All of them have an online form you can fill up.
To compute your APR, lenders would consider many factors. Among the most important ones are:
- Benchmark rates
- Credit score
- Debt-to-income ratio
- Downpayment (if applicable, such as car loans and mortgage loans)
- Employment status and income
- Loan principal
- Loan term
- Loan type or purpose
- Location (particularly for mortgage loans)
- Perks and rewards (on credit cards)
- Repayment history
|Lender||Best For||APR||Minimum Credit Score||Maximum Loan Amount|
|Avant||Bad credit installment loan repayment options||9.95% – 35.99%||580||$35,000|
|LendingClub||Online installment loans no credit check||8.05% – 35.89%||600||$40,000|
|LendingPoint||Quick funding on bad credit installment loans||9.99 – 35.99%||580||$25,000|
|OneMain Financial||Cosigned or secured installment loans for bad credit||18.00 – 35.99%||N/A||$20,000|
|Oportun||Installment loans no credit check||27.74 – 35.95%||N/A||$10,000|
|Universal Credit||Installment loans for bad credit with credit building tools||8.93 – 35.43%||560||$50,000|
|Upgrade||Bad credit installation loans for debt consolidation||5.94 – 35.97%||560||$50,000|
|Upstart||Bad credit Installation loans for thin credit history||6.76 – 35.99%||580||$50,000|
What Is an Installment Loan for Bad Credit?
In principle, lenders approve loans only if there is enough reason to believe that a borrower can and will repay the loan. As such, they put a premium on factors such as credit score. In addition, some may also need collateral. Be that as it may, taking out an installment loan for bad credit seems to be challenging. Here are 10 Bad Credit Personal Loans In The Market you can try.
Given that many financial institutions decline applications of individuals with bad credit scores. There remains plenty that sees it as an opportunity.
They charge higher interest rates and fees. In exchange for higher returns, they take more risks in releasing installment loans for bad credit.
|FICO Credit Score||Rating|
|300 – 579||Poor|
|580 – 669||Fair|
|670 – 739||Good|
|740 – 799||Very Good|
|800 – 850||Exceptional|
For reference, the following table shows the credit score ratings. Any score between 300 to 579 is bad credit. Some lenders, by the same token, also deem 580 to 669 as bad credit.
Can You Get a Loan with Bad Credit?
As mentioned, there are traditional and online installment loans made available to people with bad credit. So, yes. You can borrow money even if your credit score is lower than 660.
If you look at the requirements of bad credit online installment loan lenders, it is easy to see that most require a minimum of 580. A few, however, are willing to lend money to people with at least 560.
How Can You Improve Your Bad Credit Score?
Having a bad credit history means paying higher interest for loans. If your credit rating is low, that should be more than enough motivation to improve your credit score.
1. Review and Correct Your Credit Report
Credit reports are the basis for determining credit scores. Anything negative pulls down the rating. But mistakes can happen. Hence, you should review your credit usage history at least once a year.
The most common mistakes that can occur are:
- Personal information. Check your full name, complete address, and social security number. If there is a mistake, it may indicate someone stole your identity.
- Unknown accounts. Someone with the same name as yours was listed mistakenly in your credit report. Worse, it might be a case of identity theft in which the perp opened an account using your name.
- Account status. Check your account number, account balance, and credit limits. Be sure that they are accurate. At the same time, check the closed accounts and see if there are any listed as open.
- Expired debts. Late payments and other negative remarks can significantly pull down your credit score. There is not much you can do but wait for up to seven years before their removal. Check and ensure that none of the negative remarks are more than seven years old.
- Reinsertion of wrong information. After disputing incorrect information, the correct information should now appear. But some people have since found that the inaccurate information reappeared. In this case, you have to redispute with the relevant credit bureaus.
To review your credit reports online, you can visit this site.
2. Pay Bills on Time
Notice that your credit report includes payment history? Yes, paying on time plays a huge role in improving credit scores. On the contrary, late payments, especially those bills which are 30 days or more due, will pull down your rating.
What you can do is review your monthly expenses. Stop spending on the unnecessary so that you can have funds to pay off debts. The more cash you can spare, the better and sooner you can wipe your slate clean.
Another thing you can do is enroll in automatic bill payments. At some point in time, most people have missed a due date at least once. To ensure that you avoid missing due dates, use autopay. By the way, some lenders offer an extra discount for using automated payments.
3. Get a Co-signer
What comes to mind at the thought of asking someone for help? How do you feel about it? Did it make you feel uneasy? If so, that is a natural emotional response as no one wants to surrender control to another person. No one wants to feel incompetent. Moreover, no one wants to experience rejection.
But most people, including you, want to or could help as long as it is within means. Hence, you can get someone with a higher credit score and income to co-sign your loan application. Co-signing is an option that is usually available from traditional installment loan lenders.
Having a co-signer increases the odds of getting your application approved. Furthermore, it can help lower the interest rates and other fees. As long as you repay the bills on time, your credit history will improve.
4. Be an Authorized User of a Credit Card
It seems as if everyone in the United States has at least one credit card. As per the latest statistics, the average number of credit cards per adult American is 3.7+. So, why would you want to get yourself to be an authorized user on someone else’s credit card?
As it turned out, if that other person has an excellent payment history, it can help you. It does not matter if that person is a family member or friend. Your credit score may improve as long as the principal pays on time.
But remember to keep one thing in mind. Be sure that the person you ask for help from is responsible and can maintain a high credit score. Otherwise, if they become delinquent on their payments, it may harm your already bad credit score.
5. Think About Taking a Credit Builder Loan
A credit builder loan does not need a credit history – usually. It may seem counterproductive to take out more loans, but there is a reason for this move. As long as you can ensure paying on time, you can use this facility to improve your bad credit score.
So, how do credit builder loans help people with bad credit scores?
The fixed payments you make monthly can help boost credit scores. For this to work, the account has to be at least six months old. And, that is why these loans carry a minimum of six months’ terms. Also, the lender should report your account to the three major credit bureaus.
How Does an Installment Loan Improve Credit Rating?
After you pay off the installment loan, the account gets closed. Even so, it can help you keep a higher credit score because it stays on your credit history for ten years. That’s just one aspect. Here’s how an installment loan affects your credit score:
1. Debt Consolidation
Where do personal loans issued by lenders go? Among the many reasons for taking out this loan, debt consolidation is tops. Since the interest rate is lower than other debts, many people see it as a sound financial decision.
In Addition, it is easier to manage one as opposed to several accounts and different payment dates. But there is just one little thing. Doing so may not boost your credit score.
Apart from the things you can do to improve your bad credit score, as discussed in the previous section, you can also diversify your debts.
2. Payment History
Payment history accounts for 35% of the FICO credit score. Accounts owed, meanwhile, account for 30%. Together, they are the most important categories in your credit history.
3. Credit Mix
Another category, credit mix, accounts for 10%. Although it does not compare to payment history and accounts owed, you cannot ignore its significance.
Credit mix refers to the different debts under your name. They could include credit cards, student loans, personal loans, mortgages, car loans, and others.
Adding an installment loan, for example, adds one more account under your name.
The more diverse the credit mix, the better it is for you. You see, as long as you can keep paying the dues on time, it shows good money behavior. As a reward, your credit score increases. As long as you keep up, there is no reason to see you finally get over the bad credit score.
Are Bad Credit Installment Loans Better than Payday Loans?
As you ponder over online loans, one that may crop up are payday loans. For sure, payday lenders must have done superb jobs advertising their services to leave a lasting impression on potential borrowers. So, how good are payday loans? Should you consider them or avoid them and stick to installment loans for bad credit?
Bad credit installment loans give the impression that lenders are punishing borrowers. They scrutinize applications, charge higher interest rates and fees. Be that as it may, payday loans are not any better. On the surface, these loans are enticing. But digging deeper, the effective APRs of these loans can be up to 400%, while installment loans top out at 36%.
Why Do People Take Out Payday Loans?
It is easy to apply and receive the money on the same day or the day after. But the amount they offer does not measure up to installment loans. Although getting approved for bad credit installment loans is more challenging, the limit can be as much as $50,000. The payday loan limit is usually $500 only.
The adage “too good to be true” also applies to the choice of lenders. Some of these companies know that many people are wary of the atrociously high APRs associated with payday loans. So, what they do is pass off payday loans as small installment loans. Beware of these companies because the effective APRs of these dubious loans can be more than 700%.
A payday loan may be a stop-gap solution if you are in a bind with no other choice. Otherwise, applying for an installment loan online for bad credit is better.
What Should You Consider Before Getting an Installment Loan?
Before you take out an installment loan, make sure that it is a sound financial decision. Remember to separate necessities from luxuries. And, most especially if you have a bad credit score, you have to think twice and thrice.
There is a reason why your credit score is terrible.
Are you sure you want to take a new debt?
- Higher loan amount. Installment loans for bad credit provide up to $50,000. This limit depends on your financial capability, credit score, among others.
- Lower APRs. Bad credit installment loans may have lower APRs than revolving personal lines of credit or charge cards.
- Cover large expenses. The higher loan amount lets you make a major purchase. You can then repay the loan in smaller,
manageable monthly installments.
- Bad credit loans are available. Installment loans are available even to individuals with bad credit scores. The lower the ratings, though, results in higher interest rates and other fees.
- Choose installment loan rate type. Depending on the loan type, you have the option of choosing variable or fixed interest rates.
- Clear payment terms and schedule. Bad credit installment loan lenders provide detailed repayment schedules. It is easy for you to understand the terms, including payments and due dates.
- Predictable repayments. The payments for installment loans for bad credit come with fixed monthly dues. Because of that, it is easier to create and manage household budgets.
- Prepayment options. You can pay off the entire loan or pay more monthly to save on interest. Do keep in mind that the lender may charge you a prepayment fee.
- Improve credit score. By paying on time, installment loans can help improve your bad credit history. For this to be possible, ensure that the lender is reporting your payments to the credit bureaus:
- High loan fees. You have to pay for charges associated with the loan. These expenses include the application fee, origination fee, and prepayment fee. With a bad credit score, the fees charged to you are higher.
- High APRs. You can shop around for the one bad credit lender that offers a lower interest rate. Regardless, it is still high compared to loans for good credit scores. Apart from that, you have to pay for higher charges associated with the loan.
- Lack of extra funds. Some people spend as much money as they make (or even more). If that is the case, any sudden expenses can result in missed payments. Other than that, it may not be possible to save for emergencies when finances are too thin.
- Defaulting on payments comes with consequences. Failing to repay the loan will hurt your credit score. It is also going to reflect on your credit history. Furthermore, the lender can seize the collateral you put up.
- Cannot increase loan size. If an emergency or situation arises, needing more funds, you cannot increase the loan size.
- Long payment schedule. While long-term loans can help lower the amount you pay monthly, you end up spending more on interest. It also means that you are in debt for a long time. At least for the term, you have to deal with the stress of fulfilling payments.
What Are Good Alternatives to Installment Loans?
Before taking out an installment loan for bad credit, consider these alternatives. Credit union and payday alternative loans may even be better options for you.
1. Credit Unions
Credit unions are nonprofit, tax-exempt organizations. If available, then you should consider getting a loan there.
There are two kinds of credit unions:
- Federally-chartered credit unions
- State-chartered credit unions
Federal credit unions fall under the regulatory authority of the National Credit Union Administration (NCUA). State credit unions, on the other hand, adhere to regulations and guidelines of local states. Note that not all states have state-chartered credit unions.
Whichever is available to you likely offers two kinds of loans:
- Secured personal loans
- Unsecured personal loans
Like commercial lenders, they also scrutinize your financial status. That means they will do a credit check. Likewise, they will also review your standing as a member.
The advantages of credit union loans over installment loans are:
- Lower interest rates (usually)
- Flexible loan terms
- Loan officers consider other factors, not only your credit score
2. Payday Alternative Loans (PAL)
The interest rate and fees of payday loans are atrocious. People availing of this loan and are not careful with choosing the lender could be paying up to 400% APRs. But there is an alternative – one that is reasonable even when compared to installment loans.
Payday alternative loans, though, are not widely available. Only some federal credit unions offer this type of loan. If this is an option you could take, you will appreciate lower interest rates and fees.
Federal credit unions can offer two types of payday alternative loans.
- PAL II
The similarities of PAL and PAL II are as follows:
- The interest rates cannot be higher than 28%
- The application fee cannot be more than $20
Where they differ is as follows:
- PAL repayment terms are from one to six months. PAL II can be up to twelve months.
- Loan amounts for PAL range from $200 to $1,000. For PAL II, it can be up to $2,000.
- You have to be a member for at least a month before applying for PAL. There is no such restriction for PAL II. You can fill out an application as soon as you join the federal credit union.
Other Important Things you Need to Know
1. Are Guaranteed Installment Loans for Bad Credit No Credit Check Legit?
When you look up installment loans on Google, you may see the following on the search results.
- Online installment loans, no credit check
- Long term installment loans, no credit check
Notice that these are lenders telling you that they do little to no credit checks. Assuming that they can provide you with funds, there is one catch. You are going to repay appalling interests.
2. Does an Installment Loan for Bad Credit Require Collateral?
Whichever you prefer – secure or unsecured – there is no shortage of lenders. With bad credit, a secured loan is easier to obtain. Also, the interest rates and fees might be slightly lower than unsecured loans.
3. Should I Consolidate Debt or Not?
It depends on which debts you are consolidating. If it is credit cards, then most likely, the answer is yes. That is because installment loans have lower interest rates. By doing so, you are saving money.
But as one with a bad credit score, it may be better not to consolidate. This way, you have more credit mix (more accounts in your credit report). By paying all those debt accounts on time, it helps boost your credit score.
4. Can I Have Two or More Installment Loans?
Having multiple installment loans is expected. Personal loans, car loans, and mortgages are examples of such.
5. What Will Happen if I Do Not Repay My Installment Loan?
A few things can happen when you fail to repay a loan. First, your credit score drops. Second, for secured loans, the lender will confiscate the collateral.
As your credit score dives, the repercussions in the future are that the interest in future loans will be higher.
Get an Installment Loan But Enhance Your Credit Rating
The only reason for a bad credit rating is failing to keep up with bills in the past. Because of that, you are experiencing the pain of getting a loan approved. Fret not, because there are many traditional and online lenders. Even with a bad credit history, there is hope.
- You can avail of an installment loan, but it comes with a higher APR.
- Bad credit loan amounts range from a few hundred dollars to $50,000.
- Credit union and payday alternative loans are excellent for small loans.
- Review your household and other necessary expenditures, and avoid non-essential spendings.
- Besides cutting down on expenses, try to earn money on the side to augment your capacity to pay off debts.
Even more important than taking out and getting a personal loan approved is being smart with your finances. To learn more about taking out loans and managing your finances, subscribe to the FiLife newsletter.