What is an Installment loan

Writer and editor - Bryan Robinson | Updated on 2023-01-11

What is an installment loan?

An installment loan is a loan in which there are a set number of scheduled payments over time. The term of the loan may be as short as a few months or as long as 30 years. A mortgage, for example, is a type of installment loan. The borrower receives a lump sum at the beginning of the loan and then makes equal monthly payments for the life of the loan.

How do installment loans work?

Installment loans are generally used for larger purchases, such as a car or a house, and are often secured by collateral.

Installment loans are typically paid back in equal monthly payments, with each payment consisting of interest and principal. The interest portion of each payment goes towards repaying the interest that has accrued on the loan, while the principal portion goes towards repaying the principal balance of the loan.

The terms of an installment loan can vary depending on the lender and the borrower, but typically involve a fixed interest rate and a set repayment period. The repayment period can range from a few months to several years, and the interest rate will be based on the borrower’s creditworthiness.

For example, a typical installment loan might have an interest rate of 8%, a repayment period of 36 months, and monthly payments of $250. This means that over the course of 36 months, the borrower would repay $9,000 in total: $8,000 in principal, plus $1,000 in interest.

What are the benefits of installment loans?

There are many benefits to taking out an installment loan, including the following:

  • You can borrow a large amount of money at once and then repay it over time in manageable installments.
  • Installment loans typically have lower interest rates than credit cards, so you will save money on interest payments.
  • You can use the money from an installment loan for any purpose, including consolidating other debts, making home improvements, or paying for unexpected expenses.


See also article on Personal loan.

What are the drawbacks of installment loans?

There are some potential drawbacks to taking out an installment loan, however. These can include:

  • Higher interest rates: Because installment loans are not secured by collateral, they often have higher interest rates than other types of loans.
  • Limited borrowing amount: Installment loans typically have a lower borrowing amount than other types of loans, such as home equity loans or lines of credit.
  • Shorter repayment terms: Installment loans also typically have shorter repayment terms than other types of loans, which can make them more difficult to pay off.

How can I get an installment loan?

There are a few things you’ll need in order to get an installment loan. At a minimum, most lenders will require that you:

  • Be at least 18 years old
  • Have a regular source of income
  • Have a bank account
  • Have a valid email address and phone number

You will also need to provide some information about your employment and income, as well as your current debts. Some lenders may also require that you have a cosigner or collateral in order to approve your loan.

Bryan Robinson

Bryan Robinson
Writer and editor


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