What is an Installment Loan?
Installment loans are lump sum loans with fixed monthly payments. This means you receive the funds once but make equal monthly installments, usually on the same day each month. You’ll receive a payment schedule showing how long you must make payments and how each payment affects your outstanding balance.
Common examples of installment loans you may already have are mortgage or student loans. You receive the funds as a lump sum to cover a specific expense and repay the loan over the term of the loan agreement.
How Do Installment Loans Work?
Installment loans often have fixed interest rates and can be secured or unsecured.
- Secured loans: Lenders require collateral for secured loans, such as a car or house. If you miss too many payments, you risk losing the collateral.
- Unsecured loans: These loans don’t require collateral but typically have higher interest rates to make up for not using collateral.
What Are Your Options for Installment Loans with Bad Credit?
The best installment loans for bad credit are more limited than personal installment loans for borrowers with good credit. Lenders usually pull your credit first; if your credit scores don’t meet their requirements, they may reject your application.
If you have a poor credit history, here are some of the most common options for installment loans for less-than-perfect credit.
Car Title Loans
Car title loans are an example of bad credit installment loans that require collateral. They are loans against a car’s equity. Most title loan lenders require borrowers to own the car without any liens and allow you to borrow 25% to 50% of the car’s value.
Like most installment loans, car title loans require fixed monthly payments and charge interest on the amount borrowed. Interest rates on title loans are often higher than any other option on this list, and lenders can repossess your vehicle if you miss too many payments. They should be a last resort and only reserved for emergency financial situations.
Peer-to-Peer Loans from Online Platforms
Peer-to-peer loans are the most common type of installment loans when borrowers with bad credit need cash fast. They typically don’t require a reason or use for the funds and are unsecured. You can usually use a peer-to-peer loan to satisfy any type of financial need, such as medical bills, a sudden decrease in income, unexpected repairs or debt consolidation. They are often known as personal loans.
The downside is most peer-to-peer loans have much higher interest rates and fees. This makes up for the risk you pose to the investors lending the money. Also, pay attention to the terms, looking for prepayment penalties, or other miscellaneous fees.
Auto Loans from Auto Loan Aggregators
Auto loans are a version of a secured loan because you put the car up as collateral. If you have too many missing payments, the lender can repossess the vehicle. The only use for the funds is to purchase a vehicle. The lender must have proof of the vehicle purchase, including the vehicle’s information.
Like a personal loan from online lenders, it’s best to work with loan aggregators who network with many lenders. This provides you with more options to secure financing despite having bad credit. Be sure to read the terms carefully, and understand the total interest paid on the loan if you keep it for the entire term.
Credit Union Loans
Today, it’s easier than ever to join credit unions. There are several online that allow anyone to join. They usually have simple requirements, such as opening a savings account with $5. Credit unions are known for their more flexible requirements for many types of loans, including auto and personal installment loans.
If you don’t have a local credit union provided by your employer, local community, or organizations you belong to, search for credit unions you may be eligible to join online.
Mortgage Loans
Depending on your credit scores, you may secure a mortgage loan because you use your house as collateral. Like auto loans, if you default on your installment loan, the lender can repossess your home. Conventional mortgage loans require good credit scores; however, government-backed loans, such as FHA loans, often allow lower credit scores, making it easier for borrowers with bad credit to buy a house.
What Credit Scores Do You Need for Installment Loans?
There are many types of installment loans to consider, and each one has different credit score requirements. Some installment loans are only for those with good credit, but there are bad credit loans, too.
For example, FHA loans allow credit scores of 500 – 580, and some other online installment loans from various lenders allow low credit scores. Typically, it’s best to offset your bad credit scores with collateral or other ‘good factors’ to get approved, and each lender has different requirements.
Keep in mind that most lenders do a hard credit inquiry to determine if you qualify for the loan. This means they pull your credit scores and history. The inquiry may hurt your credit score slightly.
Do Installment Loans Hurt Your Credit?
Many lenders report installment loans to the credit bureaus, but not all do. If you’re worried about a loan affecting your credit, ask the lender if they report to all three credit bureaus. Auto loans, mortgages, and personal installment loans usually get reported to the credit bureaus, and title loan companies don’t.
However, there’s a benefit to lenders reporting your loans to the credit bureaus. If you make on-time payments, you may increase your credit score. Your payment history affects your credit score the most and will have the greatest effects (if you pay on time).
On the other hand, if you default or miss payments, it could greatly hurt your credit score. Be sure to only take a loan payment you know you can afford.
What to Beware of With Installment Loans for Bad Credit
When considering installment loans with bad credit, watch out for the following:
- High-interest rates: Lenders charge interest rates based on your qualifying factors. A bad credit score is often a good enough reason to charge a higher interest rate.
- Excessive fees: Like interest rates, lenders often charge higher origination fees for loans for borrowers with bad credit. Don’t pay more than is typical for the area.
- Challenging payment terms: Read the fine print and ensure you can manage the payment terms and that there aren’t balloon payments or prepayment penalties.
- Borrowing more than you need: Only borrow installment loans for bad credit for the amount you need to satisfy your financial emergency. Never borrow more than you need.
Alternatives to Installment Loans With Bad Credit
Installment loans aren’t the only option when you need money fast. Here are a few options to consider before completing an installment loan application.
Borrow from Family or Friends
If you’re struggling financially, but it’s temporary, friends or family may be able to help. This works well when you have a specific unexpected expense or emergency. It’s best to treat any money borrowed from family or friends like a loan that lenders offer. Complete a contract so everyone is on the same page and the repayment terms are agreed upon by all parties.
Start a Side Hustle
A side hustle is a great way to earn extra money. There are many opportunities, such as delivering food, driving passengers, or doing freelance work online. Consider what you do best, and find a way for it to earn you income.
Payday Loans
Payday loans are risky and usually have very high-interest rates. Payday loans are for small loan amounts and have a short turnaround. Repayment is expected on your next payday. A payday loan is considered a temporary fix between paydays, but they often become a never-ending debt cycle because they are hard to pay off on time.
Responsible Borrowing
At MontanaCapital™, we believe in transparent and responsible lending. Installment loans can be a useful financial tool, but it’s important to borrow wisely to avoid unnecessary debt.
Before accepting any loan offer, make sure to:
- Review all rates, fees, and repayment terms carefully.
- Borrow only what you can comfortably repay within the agreed timeline.
- Ask questions if any part of the agreement isn’t clear.
- Compare different loan options to choose what’s best for your situation.
We encourage all borrowers to stay informed and make confident financial decisions.
FAQ
What Is The Easiest Installment Loan To Get With Bad Credit?
Title loans are the easiest installment loans with bad credit because title loan lenders don’t rely on your credit score for loan approval. Instead, title loan lenders focus on your ability to repay the loan and measure the equity in the car.
What’s The Difference Between Installment Loans and Payday Loans?
Installment loans have a regular repayment period, ranging from a few months to several years. Payday loans require full repayment on your next payday, usually within two weeks of borrowing the funds.
What’s The Difference Between Installment Loans and Home Equity Loans?
Home equity loans are a form of installment loan, but they use your house as collateral. Home equity loans take a second lien position if you have a primary mortgage. This means they are second in line to get paid, and the primary bank must repossess your house for defaulting on your loan.
Final Thoughts
Installment loans can be a practical way to manage bigger expenses without the pressure of repaying everything at once. With clear payment schedules, no collateral required, and flexible loan amounts, they give borrowers more control over their finances.
They’re often used for debt consolidation, medical costs, home projects, or other personal needs. Even if your credit isn’t perfect, there are still options available, just make sure to review all terms carefully before accepting any offer.
Our installment loan services are designed to make the process simple, fast, and accessible for all credit types. When you’re ready, submit a quick loan request and let us handle the rest. You’ll see what you may qualify for without any obligation, and potentially get funds the same day.