What is an Installment Loan?
An installment loan is a type of loan that is repaid through regular, scheduled payments. It’s different than other types of loans—like predatory payday loans—in that it doesn’t require repayment in a single lump sum that many borrowers can’t afford. Installment loans, by contrast, spread out loan repayment across multiple smaller installments, offering a more affordable alternative.
How does an Installment Loan work?
Installment loans are, essentially, loans designed to be repaid over time. A borrower takes out a loan (let’s say $1,000) and makes arrangements with their lender to pay that loan back in a series of regularly scheduled payments called “installments.” (For $1,000 it might be something like 17 payments of $81 every two weeks.) These small-dollar payments—spread out over a longer period of time—make repayment easier and more affordable.
What are the advantages of an Installment Loan?
Installment loan payments are scheduled in advance so they’re easier more manageable and more economical. Also, installment loans are often amortizing, which means every payment will address a portion of both the principal and the interest. So the amount you pay each month will never change and this also helps you know precisely when your loan will be fully repaid.
What’s the difference between a safe Installment Loan and predatory loans?
The main difference between an installment loan and a predatory loan is that installment loans are actually meant to be repaid. That’s why they’re typically safer, more affordable, and can help build your credit rather than damage it.
Predatory loans—like “fast-cash” payday and title loans—are designed to be difficult to repay. Why is this? When a borrower takes out a payday loan, it’s usually at astronomically high rates (try a 300-1,200% annual percentage rate) for a very short term (usually two weeks). If you’re unable to repay your payday loan on time—and many borrowers can’t—you may find yourself tempted to “roll” the loan over, meaning extending the life of the loan at the cost of another round of interest and fees. Rollover is so common that the average payday loan customer takes out 10.7 loans per year and accrues a total of $574 in fees!
Installment loans, like the kind offered by OppLoans, work differently. At 99-199% APR, the cost is much lower than payday loans. Our terms are also much longer (on average 36 months), which means your payments will be lower, too. This fits into people’s lives better, making it easier to pay back your loan while also taking care of everyday expenses.
Bottom Line: Installment Loans are typically the safest, most responsible way to borrow money.
If you need to borrow money, there are plenty of ways to do it. Some are safe, but others are quite dangerous. At OppLoans, our mission is to help borrowers avoid the dangerous, predatory lenders that offer payday and title loans. We want to help people find the safest, most personalized option for themselves and their families. And in many cases, the safest and most affordable way to borrow money is with an installment loan.
Borrowers Deserve Better than a Payday Loan: The Story Behind the 36% APR Benchmark
Jared Kaplan, CEO, OppLoans
May 31, 2016
The OppLoans Guide to Safe Personal Loans
Ann Logue, MBA, CFA
June 15, 2016
What You Should Know About Interest Rates
Ann Logue, MBA, CFA
June 15, 2016
From our Blog
- Installment Loans: More Mileage for Your Money (Part 1 of 3)
- Installment Loans: More Mileage for Your Money (Part 2 of 3)
- Installment Loans: More Mileage for Your Money (Part 3 of 3)
- 3 Ways an Installment Loan Can Help Your Credit Score
- Your OppLoans Road Map to Personal Loans: Getting from A to B (Part 1 of 3)
- Your OppLoans Road Map to Personal Loans: The Dangers of the Road (Part 2 of 3)
- Your OppLoans Road Map to Personal Loans: The Perfect Trip (Part 3 of 3)