Sign up for your free account    Sign Up Now
From the Experts at

What is an Installment Loan?

Advertiser Disclosure by Lucy Lazarony

What is an Installment Loan?

With an installment loan, you borrow a specific dollar amount from a lender and you agree to pay the loan back, plus interest, in a series of monthly payments.

Qualifying for an installment loan is a great way to pay for a car, home or even pay a portion of a college degree. Home equity loans, which can come in handy for home repairs and maintenance, also are installment loans.

With an installment loan, you agree to pay a fixed monthly payment over the length of the loan term.

When determining whether you qualify for an installment loan and the interest rate that you will pay, a potential lender will look at your credit score, your annual income and your debt-to-income ratio.

Lenders look at your debt-to-income ratio to see how much you can responsibly afford to borrow in a potential installment loan.

A lender may ask you a number of additional questions including the name of your current employer and the number of years you have worked at your employer, all in determining how well you are likely to manage the monthly payments of an installment loan.

Before You Apply for an Installment Loan

Because your credit score is such a crucial part of the loan application process, it is important to keep close tabs on your credit score in the months before you apply for an installment loan.

Using’s free credit tools, you can receive two free credit scores each month plus customized credit advice from experts — so you can know what steps you need to take to get your credit score in tip-top shape before applying for a loan.

You also will want to make sure your credit reports are accurate and error-free before applying for an installment loan. You can request a free credit report once per year from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — and correct any errors.

A good place to begin shopping for an installment loan is with your local bank or credit union, where you already have an established relationship with a potential lender. And if you are approved for an installment loan from your local bank or credit union where you already have accounts such as checking or savings accounts, you may qualify for discounts on the interest rate.

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Sign up for your free account. Learn More
  • lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
  • Stay Connected to Our Experts

    Please submit your email address to get credit & money tips & advice
    from our team of 50+ experts, delivered weekly to your inbox.

Check Your Credit For FREE

Free Credit ScoreGet a FREE personalized credit check-up today.

Get Started – It’s Free!  

Certain credit cards and other financial products mentioned in this and other articles on News & Advice may also be offered through product pages, and will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.