An installment loan is a loan for a specific amount of money that is repaid over time by a set number of scheduled payments. Installment loan payments combine the principal loan amount with an interest rate. The loan term may be only a few months or as long as 30 years. As you make payments, the loan balance lowers. Installment loans are an alternative to payday and title loans, which require repayment of the entire loan all at once.
Examples of Installment Loans
Many traditional consumer loans are installment loans that are repaid over time by regular payments of principal and interest. A few examples of installment loan types include mortgage loans, home equity loans, student loans, and car loans.
How to Apply for an Installment Loan
To apply for an installment loan, you will need to be at least 18 years old and have a valid ID, a steady source of income, and an open bank account. Depending on the state you live in and where you choose to borrow, a lender will consider factors such as your current income, your ability to repay the loan, your credit score, and your debt-to-income ratio. Your debt-to-income ratio is calculated by dividing the total amount of your bills by your monthly income.
Once you’re approved for a loan, your repayment schedule will be determined. You will pay a specific amount periodically (often monthly) and accrue interest at a daily fixed rate. Your loan principal and interest will be paid back over a scheduled period.