Installment loans are designed to help you cover one-time expenses. You can typically get money fast if you apply online — but knowing how this type of loan works can help you stay out of potential financial trouble. Compare your options and learn tips for finding the right kind of installment loan.
An installment loan is technically any loan that comes in one fixed amount that you repay plus interest and fees in regular payments. Personal loans, student loans and car loans are technically installment loans. However, most loans that lenders refer to as installment loans are types of short-term loans — similar to a payday loan.
These installment loans come in larger amounts and longer terms than their payday loan cousins, though they’re generally smaller than your average personal loan. They can also come with higher rates than personal loans. You can typically borrow up to $2,000 or more and take 3 months to a few years to pay it off.
Like payday loans, some installment loans are designed to attract borrowers with bad credit. That’s because they aren’t as heavily regulated as payday loans. Watch out for these: They can come with highly unfavorable terms.
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How top online installment loans compare
Line of credit up to $15,000 (amounts may vary by province)
You can generally use an online installment loan for any legitimate purpose. However, it might be best to save them for emergencies, since they can come wth higher interest rates than other types of personal financing. You can use installment loans for:
Medical expenses. Sometimes healthcare providers don’t provide financing that all patients can qualify for. An installment loan can help make paying off medical bills more manageable, although more expensive.
Building or car repairs. Got a car that needs urgent repairs? Installment loans can help you cover that cost, no mater what your credit type is.
Overdue utility bills. An installment loan can help you keep the lights on, water running and phone line working when you don’t have the funds to make your utility payments on time.
Building your credit. Taking out an installment loan can sometimes help you rebuild your credit if you make payments on time. If this is your primary goal, however, you might want to consider applying for a credit building loan at a local financial institution like a bank or credit union. These which typically comes with lower interest rates and have low credit requirements.
What are the benefits of getting an installment loan?
Online installment loans come with various features. Here’s what you should know if you’re considering applying for one:
Quick funding. You can learn your application status in minutes with most lenders, and if approved, you can accept the loan contract. Once you do this you can expect the money in your bank account as early as a few hours or the next business day.
Flexible eligibility criteria. Getting online installment loans with bad credit is possible, primarily because lending norms are slightly more relaxed. “No credit check” online installment loans generally don’t make hard inquiries on your credit score, but you’ll need to demonstrate how you’ll be able to repay the loan.
Variable fees. The province you live in along with the amount of money you borrow has an effect on how much you pay in fees. Not all lenders charge the same fees, so keep this in mind when comparing your options.
Installment loans are not just for people with bad credit. That’s because some subprime lenders repackage what they would have previously called a payday loan as an “installment loan” in an attempt to appear less risky.
Like payday loans, these installment loans tend to come with extremely high interest rates and have similar features that can act as debt traps. But you can usually avoid them if you know what to look out for:
Loan renewal options. Does your lender allow you to renew or “rollover” your loan if you can’t pay it off in time? You might want to look somewhere else — this is where you can fall into a cycle of debt.
Guaranteed approval. Lenders that guarantee you can get a loan through them before you apply are not looking after your best interest. Most reputable lenders want to make sure you can pay off your loan first before telling you you’re accepted.
Upfront fees or payments. Reputable lenders that charge application or origination fees don’t ask for payment until after your loan is disbursed. Anything else could be a scam.
Pressure to borrow more than you need. Taking out more than you need means you’ll be on the hook for more interest. A lender that pressures you to take out more doesn’t have your interests in mind.
Insurance add-ons. Some lenders push insurance options that sound like they protect you, but really protect them in the event that something happens to you that affects your loan repayment (like death). Lenders typically don’t include this in their APR — even though it’s technically a fee — and use it as a way to get around state regulations on how much they can charge.
The lender approached you. Getting a lot of texts or calls from a lender? It could be a scam. At most, legitimate lenders might send you a letter or 2 in the mail. Run away if you feel like they’re pressuring you into taking out a loan you don’t really need.
What if I’m the victim of a predatory lender?
Under federal law it’s illegal for lenders and collection agencies to repeatedly contact borrowers outside of work hours, threaten them with jail time or garnish their wages without a court order. If you believe you might be a victim of a predatory lender — even a tribal lender — you can file a complaint with the Office of Consumer Affairs in your province or territory.
Can I qualify for an installment loan?
To qualify for an installment loan with most lenders, you generally need to:
Have verifiable income. This doesn’t mean you need to be employed, to many require you to have at least a part-time job. Some lenders accept welfare, disability and pension payments as income.
Have an active bank account. If you don’t have a chequing account, you can sometimes get a cash installment loan from a brick-and-mortar storefront.
Present government-issued ID. Lenders might ask to see your driver’s license to verify that you meet the age requirements.
Live in an eligible province. Many installment loan providers don’t lend to residents of all provinces and territories. Be sure to find one that operates legally in yours.
Canadian citizen or permanent resident. You’ll typically need to at least be a permanent resident of the province you reside in.
While most online installment loan providers are willing to work with borrowers with less-than-perfect credit, you’ll likely end up with higher rates.
Figure out what you care about most. Is speed most important to you? You might want to look at online lenders. Do you care more about overall cost? You might want to check your local bank or credit union. Know what you need out of a loan can help you speed up your search by giving you something to go by.
Ask yourself: Does a credit card make more sense? Credit cards typically have higher interest rates than personal loans, but that’s not always the case with online installment loans. There’s a chance you could get funding at less cost (or risk) by slapping that expense on plastic, if it isn’t over your credit limit.
Pay attention to the APR, not just the interest. A loan’s APR takes into account both interest rates and fees, giving you a better idea of the true cost of the loan.
Search for personal loans too. As we mentioned before, lenders that use the term “installment loan” can be predatory. You might have better luck finding a legit lender if you also look for personal loans.
Compare lenders. You might not be getting the best deal if you don’t look at multiple lenders. You can start by using our comparison table.
Don’t be tricked by long terms. Some installment loan providers offer high-interest loans with long terms. While this might reduce your monthly payments significantly, you could end up paying double the amount your borrowed — or even more — if you take the entire time to pay it off.
How much will my loan cost me?
Check out our monthly payment calculator below to see how much you’ll pay in both the short and long run:
You may want to consider an installment loan for the following reasons:
Fast turnaround time. Providers of online installment loans tend to process your application very quickly, sometimes in minutes. If you accept the loan contract, you can get your money as soon as the following business day.
Bad credit applicants are accepted. Conventional loans normally come with stringent lending criteria, but most employed people can consider applying for online installment loans with bad credit, as long as they can show their ability to repay the loan.
More manageable repayments structure. Unlike short-term loans or cash advance loans that you have to repay by your next payday, you can take longer to repay your installment loan. Most lenders even give you the ability to choose between making payments once or twice a month.
You may want to consider other options if you’re concerned about:
Fees. Online installment loans normally charge higher fees especially in comparison with more conventional forms of credit.
Higher repayments due to higher loan amounts. Installment loans have higher loan amounts than standard payday loans. While you have lower ongoing repayments because you’re paying it back over time, repayments can still be expensive. Make sure it’s manageable on your budget before you sign up.
Total loan cost. The APR on online installment loans can still be quite high, resulting in a high total overall repayment.
What are my other options?
Most online installment loans are unsecured, meaning that they don’t require collateral. It sounds great at first, right? You don’t have to put anything on the line. However, unsecured installment loans that come with high rates and can actually pose more of a risk to your financial health: You can end up in a cycle of debt if you have trouble paying it off. Here are some alternatives you can choose from.
Secured personal loan. Having trouble qualifying for a personal loan? Consider securing it with collateral. Securing your loans make you look like less of a risk to lenders and can offset a weak credit history. You’ll have a better chance at getting approved and getting a good deal on rates than you would with an unsecured loan.
Credit union loans. Credit unions and other non-profit financial institutions typically offer lower rates than other lenders, even to people without excellent credit. You can typically get even lower rates by securing your loan with a chequing or savings account that you hold with them.
Crowdfunding. If you don’t need those funds immediately, it might be worth it to reach out to your social network and start a crowdfunding campaign. You won’t have to pay it back, though many platforms charge a fee based on how much money you raise.
Paying off an installment loan
How you repay your installment loan largely depends on your lender. Generally, you need to make monthly, semi-monthly or weekly repayments until the loan is completely paid off.
If your lender allows you to repay your loan ahead of time without charging a prepayment penalty, you could stand to save on interest. That is, as long as your loan repayments all go toward paying off interest and the amount you borrow. It’s not uncommon for installment loan providers to charge interest-only repayments in the beginning, meaning that you can’t save on interest by paying it off early.
Frequently asked questions
If you have all the required information easily accessible, completing your application should take around 5 to 10 minutes. Much the same as a payday loan.
Remember that not all lenders provide installment loans in all provinces and territories. In provinces and territories where they do, you have to meet minimum age requirements, you should show you have a regular source of income, and you that you have an operational bank account.
You’ll have to provide personal details, employment details, and your bank account details.
Technically, you can. However, since installment loans typically come with high interest rates, it’s might not be the fix you need.
If you’re struggling to repay several short-term loans and your credit is shot, consider signing up for credit counseling. Credit counseling agencies can work with you to find a solution to your specific situation and offer advice on how to stay out of debt.
If you’re experiencing financial hardship and would like to speak to someone for free financial counselling, you can call Credit Counselling Canada on 1-800-007-007.
Anna Serio is a trusted loans expert who's published more than 800 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Fundera, Business.com, and ValueWalk feature her professional advice, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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