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Installment Loans: Compare Alternatives to Payday Loans

Dec. 10, 2018
Loans, Personal Loans
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Installment loans are borrowed funds that are repaid in equal parts over a period of time. They are different from revolving lines of credit, which don’t have fixed payments and allow you to choose how much credit you use.

Some short-term installment loans are offered as alternatives to high-interest payday loans and aimed at borrowers with poor credit scores. Personal loans are installment loans with longer terms that can be used to consolidate debt or cover expenses such as home improvement projects.

Here are your options for installment loans, plus what you need to know.

Installment loans for bad credit

Avant and OneMain Financial are two lenders that offer installment loans for borrowers with poor credit. OneMain requires a slightly higher credit score but takes less time to fund your loan, whereas Avant is a good option for those who require flexibility with their loan repayments.

4.0 NerdWallet rating

• APR: 9.95% - 35.99%.

• Loan amount: $2,000 - $35,000.

• Loan terms: 2 to 5 years.

• Minimum credit score: 580.

• Time to funding: As soon as the next business day.

• Fees: Administrative fee of 4.75% of loan amount; fees for late payment and unsuccessful payment.

Read our review.

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4.0 NerdWallet rating

• APRs: 16.05% - 35.99%.

• Loan amount: $1,500-$30,000.

• Loan terms: 2 to 5 years.

• Minimum credit score: None, but borrowers average 600 to 650.

• Time to funding: Same day.

• Fees: Origination and late fees; both vary by state.

Read our review.

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Avant has a minimum credit requirement of 580, although the lender says its average borrowers’ score ranges from 600 to 700. You’ll also have to meet the minimum annual income requirement of $20,000.

OneMain Financial doesn’t have a minimum credit score requirement. The lender says its borrowers have an average score between 600 and 650. While OneMain has higher rates than its competitors, it may be a good fit if you prefer a traditional banking experience and need money quickly.

» MORE: Personal loans for bad credit

Installment loans for fair credit

Lenders such as Upgrade and Upstart provide loans for borrowers with fair or average credit, based on factors like free cash flow and academic background that typically aren’t considered.

4.0 NerdWallet rating

• APR: 7.99% - 35.89%.

• Loan amount: $1,000 - $50,000.

• Loan terms: 3 or 5 years.

• Minimum credit score: 620.

• Time to funding: 24 hours.

• Fees: Origination fee of 1.5% - 6% of loan amount.

Read our review.

Check rate Click to pre-qualify on NerdWallet.
4.0 NerdWallet rating

•APR: 7.69% - 35.99%

•Loan amount: $1,000 - $50,000

•Loan terms: 3 to 5 years

•Minimum credit score: 620

•Time to funding: Next business day

•Fees: Origination fee of 0% - 8% of loan amount. Fees for late payment and unsuccessful payment

Read our review

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Upgrade may be an option if you have a credit score of 620 or higher and free cash left over at the end of the month after paying your bills. The lender also provides access to tools that help you understand your credit and a hardship program in case of sudden events like losing your job.

Upstart considers several factors apart from credit scores such as academic history, employment and income in its decision-making process. You also need a credit score of at least 620 and annual income of $12,000.

» MORE: Best personal loans for fair credit

No-credit-check installment loans

Be wary of lenders that offer loans without performing a preliminary credit check, which involves a soft pull of your credit report. Such no-credit-check installment loans share characteristics with conventional payday and auto-title loans, including sky-high interest rates and additional fees that make the loan less affordable than you initially thought it would be.

Some online lenders, such as Oportun and OppLoans, offer installment loans and are positioned as low-cost alternatives to payday loans. However, you should only consider these lenders once you have looked at all of your options.

Alternatives to installment loans

You may also want to consider some of the options listed below if you’re looking for a source of credit similar to an installment loan:

CREDIT UNIONS

Your local credit union might be worth a try, even if your credit score is low. Most credit unions offer small-dollar loans and help borrowers find an affordable payment plan. Interest rates at federal credit unions are capped at 18% by law for most loans.

CREDIT-BUILDER LOANS

Credit-builder loans are meant for people who have poor credit or a “thin” credit history. Lenders require that you have enough income to make repayments, which are reported to the three major credit bureaus: Equifax, Experian, and TransUnion.

PAYDAY ALTERNATIVE LOANS

Payday alternative loans, or PALs, offer members of some credit unions the option to borrow small amounts of money at a lower cost than a conventional payday loan and make repayments over a longer term.

Build your credit

If you have poor credit, an installment loan can help your score in some cases. A better credit score means access to better rates and more reputable sources of credit such as a bank, online lender or a credit card company. Another figure to watch is your debt-to-income ratio, which lenders use to compare your level of debt to your income.

» MORE: See your credit score for free with NerdWallet

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