Sean Anthony Eddy/ Getty Images; Illustration by Austin Courregé/Bankrate
Key takeaways
- Read customer reviews and research lenders’ eligibility criteria to start narrowing your list of potential installment loan options.
- Compare key loan attributes among various lenders, including fees and terms.
- Before zeroing in on one loan or lender, prequalify with three financial institutions to ensure you get the best deal for your situation.
There are many types of installment loans, and personal loans are among the most popular, given that you can use them to accomplish many financial goals. Comparing personal loan lenders improves your odds of landing a competitive interest rate and favorable term, plus no or low fees.
To get the best installment loan possible, compare lenders by their rates, customer satisfaction and other key characteristics. Prequalifying with multiple lenders — ideally a mix of banks, credit unions and online lenders — can also help you confirm your eligibility while surveying the market.
1. Research what experts and customers say about lenders
Installment loans are offered by nearly every type of financial institution. A good way to narrow down which lenders to compare is by reading lender reviews. At Bankrate, for example, our editorial team of experts rates lenders across four categories, including customer experience and transparency.
You can also gauge customer satisfaction levels by reading borrower-written reviews and ratings on websites like Trustpilot and the Better Business Bureau. Knowing what others liked or disliked about lenders can help you determine which you’d like to explore further.
2. See how you stack up against lenders’ eligibility rules
Each installment loan lender has different approval requirements, including minimum income and credit score criteria. For example, borrowers with FICO Scores above 670 will usually have more access to competitive rates via good credit lenders. Those with lower credit scores may need to cast a wider net in the search for fair credit loans.
Lenders also evaluate your debt-to-income ratio (DTI), which helps determine how large of a loan you can comfortably pay back.
Before jumping into an application, put your finances up against these minimum eligibility requirements to make sure you’re eligible. Most lenders house this information in a “frequently asked questions” section of their website, or you can consult up-to-date lender reviews.
The author’s expert insight
If you have specific questions for a lender, call or email them. You’ll (hopefully) get the information you need, but you’ll also test out their customer service. Bear in mind: If their service is lacking before you become a customer, don’t expect much better after you become one.
3. Compare lenders’ fees to lower your overall borrowing cost
Avoidable fees include:
- Origination fees are a set percentage — typically between 1 percent and 10 percent — of the approved loan amount. They’re taken from the amount you receive or added to what you must pay back. Ideally, you want a lender that skips these fees to minimize borrowing costs.
- Documentation fees cover the lenders’ costs for reviewing your application and underwriting your loan. Reputable lenders don’t charge them.
- Prepayment penalties discourage you from making more than your set monthly payment. If you expect to repay your loan before your term is up, confirm that lenders on your list don’t charge this type of fee.
Bankrate tip
If your borrowing needs are urgent, also compare lenders by their funding speed, or how long it takes them to deposit your loan funds after your application is approved. Online and alternative lenders tend to offer faster funding than traditional lenders, like banks and credit unions, but that’s not always the case.
4. Determine your ideal terms, and confirm that lenders offer them
Personal loan lenders typically offer repayment terms (the length of time you have to repay your debt) spanning two to seven years or longer. Comparing lenders by term options is helpful — but only if you do some additional homework.
First, to figure out your ideal term length, create or update your budget. After estimating your monthly income and expenses (and perhaps trimming a few along the way), create a line item for your loan payment. See how much of your cash-flow can be dedicated to covering it.
Once you know the maximum monthly payment you can afford, consider using a free personal loan calculator. Plug in your desired loan amount, an average interest rate (or a quoted APR, if you get one in step five) and various terms to compare monthly dues.
To minimize the interest you’ll pay over time, you want the highest monthly payment and shortest term you can realistically afford. If you can’t afford the potential minimum monthly payment, it may be wise to pause your loan application or consider borrowing alternatives. If you improve your credit before resuming your search for an installment loan, you should qualify for a lower interest rate and a monthly payment that better fits your budget.
5. Chase low interest rates via prequalification
Prequalifying for a loan allows you to confirm your eligibility and view potential interest rates without impacting your credit score. Not every lender offers prequalification, but if possible, prequalify with at least three lenders from your shopping list.
It helps to apply with different types of lenders, too. Federal credit unions, for instance, can be a great option because of their 18 percent rate ceiling. If you immediately resort to a bank or online lender that caps rates at credit card-like levels (say, 35.99 percent), your repayment could become far more expensive.
Keep in mind:
If a couple of your preferred lenders don’t offer prequalification, it might still make sense to proceed with a formal application. That’s because the credit bureaus treat multiple applications as a single hard credit inquiry — as long as you submit the applications within a 30-day period. Try to apply on the same day or within the same week so you can make an apples-to-apples comparison in case personal loan rates shift.
How to get an installment loan with bad credit
If you compare installment loan lenders only to realize that your application isn’t where it needs to be — either for approval or to get a low-interest personal loan — then keep in mind: While it may be harder to find lenders if you have bad credit, it’s not impossible. Consider these steps to move forward:
- Improve your credit score before taking on a loan (if your borrowing needs aren’t urgent). As a first step, successfully disputing credit report errors may result in a better score within 30 to 45 days. However, the best way to grow — and sustain — credit growth is through a good repayment history and credit utilization. Focus on making regular, timely payments and paying off any late balances to increase your score.
- Research bad-credit lenders that utilize more flexible lending and approval models. Remember that these loans often come with higher rates and fees than loans for good credit borrowers.
- Consider a secured installment loan backed by collateral, like a house or car, reducing the risk for the lender or company. Beware: If you fail to make your monthly payments, the lender can legally seize your collateral.
What if you need an installment loan quickly?
Consider seeking a cosigned personal loan, perhaps piggybacking onto the stronger credit history of a family member. Unlike a co-borrower on a joint loan, a cosigner wouldn’t share equal access to the loan funds, but they would be equally responsible for repayment.
Alternatives to installment loans
If an installment loan isn’t the best option for you, consider installment loan alternatives to get the funds you need.
| Alternative | Best if you… | Keep in mind |
| Borrow from family, friends | Have a financially-secure benefactor | Make sure to have a written agreement to hold both parties accountable. Uphold your end of the agreement to preserve your personal relationship. |
| Local assistance | Need urgent help | Dialing 211 is a good starting point, but be prepared for the leg work of chasing down aid. |
| Payment plan | Owe a debt or bill to a creditor or organization that offers this option | Spreading out your payments in installment loan-like fashion can give your budget necessary breathing room. |
| Paycheck advance | Have an employer willing to front your wages | If your workplace doesn’t offer this option, be more wary of cash advance apps that charge hidden fees. |
| Buy now, pay later (BNPL) | Must make a purchase with a retailer that offers BNPL | BNPL is a loan, and even if you opt for an interest-free, short-term repayment, nonpayment can harm your credit. |
| Personal line of credit | Have variable or long-term expenses | A personal line of credit might only be a better option than a credit card if you can get a lower interest rate. |
| 0 percent introductory APR credit card | Have the dependable cash-flow to zero your balance during the intro period | Confirm that the card waives, not defers, your interest during the promotional period — and that you can zero your balance before the steep APR kicks in. |
| Tap home equity | Own at least 20% of your home | If you’re a homeowner but don’t want to give up a low mortgage rate (via refinancing), you could leverage your ownership to instead get a competitive rate on a home equity loan or line of credit. |
| Withdraw retirement savings | Aren’t nearing retirement and plan to stay in your job | A 401(k) loan, for example, could be more cost-effective than an installment loan, but your repayment term could be severely shortened if you change employers. |
Bottom line
Assess your finances, and compare installment loan offers from multiple lenders before moving forward. This will help you narrow your choices and choose the loan with the best term and interest rate for your situation.
If you find that multiple lenders offer similar terms and rates, look for features that set them apart. Some companies offer benefits and perks, like autopay discounts and payment due date flexibility. Research each lender’s potential perks before applying for a loan.
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