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Installment loans are designed to cover one-time expenses that need a quick fix. When you apply for an installment loan online, you can typically get money fast. You’ll usually have a longer time to repay the loan than you would have with a payday loan.
Read on to find out how installment loans work, what you can use a loan for, the benefits and risks, and factors to consider when comparing loans. We also provide a list of other options you can consider if you don’t want to use an installment loan.
An installment loan is technically any loan that comes in a fixed amount, which you then repay plus interest and fees in regular repayments. Payments are usually made once a month, however some lenders will allow you to pay bi-weekly or weekly. Personal loans, student loans and car loans are all technically installment loans. However, most loans that lenders refer to as installment loans are a type of short-term loan, similar to a payday loan.
Installment loans come in much larger amounts and longer repayment terms than payday loans do, although they’re generally smaller than your average personal loan. Installment loans also come with higher interest rates than regular personal loans. You can typically borrow up to $10,000 or more and take 6 months to 5 years to pay it off, depending on the terms.
Much like payday loans, some installment loans are designed to attract borrowers who have bad credit scores. This is because they tend to be less heavily regulated than payday loans. Be careful that the installment loan you are interested in does not attract highly unfavourable terms.
Read more about the differences between installment and payday loans
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 with higher interest rates than other types of personal financing. You can use installment loans for:
This will depend on the loan and the lender. When you apply for a loan and are approved, you should receive a loan contract that will outline the fees and interest rate that will apply to your loan.
Here are the costs that may apply:
Use our monthly payment calculator below to see how much you’ll pay in both the short and long run:
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Compare installment loansOnline installment loans come with various features. Here’s what you should know if you’re considering applying for one:
Installment loans are not just for people with bad credit, although you wouldn’t know that if you only did a quick Google search. 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.
Much like payday loans, installment loans tend to come with extremely high interest rates and have similar features that can act as debt traps. You can usually avoid them if you know what to look out for:
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.
Installment loans can be applied for if you have bad credit or are on a lower income, as long as you are able to afford the repayments. Generally, lenders will look at your income, credit history and employment information to determine your eligibility for a loan. Unlike a payday loan, your credit history does tend to matter more.
Additionally, you will need to meet the following basic eligibility criteria:
Applicants with good to excellent credit scores are more likely to get a good deal on online installment loans. That’s because many lenders use underwriting software that rely heavily on your credit history when determining your eligibility.
You may want to consider an installment loan for the following reasons:
You may want to consider other options if you’re concerned about:
The answer to this question will depend on your ability to repay your installment loan when it’s due. Consider the following scenarios:
If you have bad credit and need an installment loan, read our guide
The two main credit bureaus in Canada – Equifax and TransUnion – use different algorithms to calculate your credit score. Not only does this mean your credit score will differ slightly depending on which bureau you check, it also means that each bureau weighs factors differently to calculate your credit score. Here are the five main factors that make up your credit score:
Taking the above factors into consideration, applying for and receiving an installment loan will likely affect your credit score in the ways listed below. Take note that some positively affect your credit score, while others may negatively affect it.
How you repay your installment loan will largely depend on the lender. Generally, you need to make monthly, semi-monthly or weekly repayments until your 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. Understand the terms and conditions of your loan before you apply for and accept it.
Repayment terms will differ depending on what type of loan you apply for and the lender you apply with. Generally, the following will apply:
| Repayment terms | Description |
|---|---|
| Loan terms. | These vary between 6 months and 5 years. |
| Payment method. | Lenders will usually automatically deduct payments from your bank account on the day the payments are due. Some lenders will also give you options of repaying the loan online, via a cheque or through an app. |
| Repayment frequency. | You will usually repay the loan according to your pay schedule from work. If you get paid weekly, bi-weekly or monthly, you can arrange your repayments around this schedule. |
Most online installment loans are unsecured, meaning they don’t require collateral, such as your car or house. It sounds great at first, right? You don’t have to put anything on the line. However, unsecured installment loans that come with high interest rates can actually pose more of a risk to your financial health: You can end up in a vicious cycle of debt if you have trouble paying the loan off. If you want to look at other types of loans, here are some alternatives you can choose from:
Learn about installment loans and compare lenders in Alberta to find the right loan for your financial circumstances.
Learn the basics of taking out an installment loan in BC and compare lenders to find the right loan for you.
Find out how to take out an installment loan in Ontario and compare lenders today.
