What is an Installment Loan?

If you need extra funds to make a major purchase or to consolidate debt, an installment loan may be a great option. An installment loan can provide you with the financial flexibility to achieve your goals while spreading out the cost of your loan into affordable monthly payments. To help you understand what installment loans are, here is some information about the different types of installment loans and some considerations you should take before deciding if an installment loan is right for you.

How do installment loans work?

An installment loan provides a set amount of money that you borrow upfront and then repay over time, usually through fixed monthly payments — or “installments.” Each monthly payment typically includes:

• A portion of the principal (the original amount you borrowed)
• Interest (the cost of borrowing the money)
• Any other one-time or incidental fees, such as an origination fee — an upfront fee a lender may charge to process an application and set up the loan.

Repayment periods could range from one to 30 years, depending on the type of loan.¹

Installment loans can be secured or unsecured. A secured loan is backed by collateral, or something valuable that you own, like a car. If you fail to repay the loan, the lender could take your collateral to recover their losses.

The terms of the loan, including the interest rate and repayment period, may differ depending on the following factors:

• The lender's credit policy
• State law requirements
• The Federal Reserve’s current federal funds rate
• The amount of the loan
• The type of loan
• Your creditworthiness
• Whether eligible collateral is available

Examples of installment loans

Four of the most common types of installment loans are mortgages, auto loans, personal loans and student loans.

Mortgages

A mortgage is used to purchase a home or refinance an existing home loan. A mortgage typically has a term of up to 30 years, though other durations may be available.² The interest rate can be fixed or adjustable, meaning it fluctuates with the market. The interest rate of a mortgage is influenced by the borrower's credit score, the size of the down payment, the home’s value and market conditions. A mortgage is a secured loan, with the property serving as collateral. Defaulting on a mortgage could result in foreclosure.

Auto loans

An auto loan is used to purchase a new or used vehicle and typically has a term ranging from 24 to 84 months.³ Interest rates for auto loans vary based on factors such as the borrower's credit score, the loan term and the lender's credit policy. An auto loan is a secured loan, meaning the vehicle serves as collateral and could be repossessed by the lender if the borrower defaults.

Personal loans

A personal loan may be used for a wide range of personal expenses, such as auto repairs, home improvements, weddings or emergency expenses, to name a few. A personal loan can also be used to consolidate multiple debts into one new loan, ideally with more favorable terms. A personal loan typically has a repayment period ranging from two to seven years, although this can vary by lender.⁴ Many lenders evaluate the loan application based on the borrower's credit score and income. OneMain considers many aspects of your financial picture, including your ability to repay — not just your credit score.

Student loans

A student loan finances higher education costs, including tuition, books and living expenses incurred while in school. The repayment term for a student loan can vary from 10 to 30 years, depending on the loan type and repayment plan.⁵ Student loans can be federal or private, with federal loans offering flexible repayment options with temporary payment pauses and grace periods, allowing you to delay starting your loan payments until after you leave school or drop below half-time attendance.⁶

Pros and cons of installment loans

To make an educated decision about taking out an installment loan, it can help to weigh the benefits and tradeoffs of installment loans.

As with any kind of debt, an installment loan may not be right for everyone, but it can be a useful option for some, including those whose credit score may need improvement.

Installment loans vs. revolving credit

Installment loans and revolving credit are two of the most common ways to borrow money, but they’re different in many ways. Unlike installment loans, revolving credit allows you to borrow money as needed up to a set limit, repay and borrow again.

The three most common types of revolving credit include:

• Credit card: Credit cards offer access to a line of credit that lasts as long as your account remains open and in good standing. With a credit card, you have the option to repay your balance over time, but you must make at least the required minimum monthly payment to keep your account in good standing. Minimum monthly payment amounts can fluctuate, depending on your outstanding balance and the interest rate.
• Home equity line of credit (HELOC): A HELOC is a line of credit that allows you to borrow against the equity in your home. Equity is the difference between what you owe on the mortgage and the market value of your home. A HELOC is a secured line of credit that uses your home as collateral. You can borrow from a HELOC for a set amount of time (called a draw period) before you have to begin paying it back.
• Personal line of credit: A personal line of credit allows you to borrow up to your credit limit as needed for a set amount of time. You only need to repay — and pay interest on — the amount you borrow, not the full amount you’re authorized to borrow. Most personal lines of credit are unsecured and have a variable interest rate.⁷

Steps to take before applying for an installment loan

If you feel like an installment loan is the right choice for you, here are some steps you can take before you apply.

1. Try using a personal loan calculator

If you’re considering a personal loan, a personal loan calculator can help you estimate your monthly payments, so you can understand before applying how repaying an installment loan might fit into your budget.

2. Check your credit score

You can check your credit for free before applying to avoid any surprises.

3. Gather your personal documents

What you need to apply for a loan may vary by lender and the type of loan, but commonly required documents include:

• Proof of identity
• Proof of residence
• Proof of income

Other documents may also be required. Check with your lender to determine what requirements you may need for your loan.

4. Take the time to research different lenders

You can check reviews online or ask around within your circle of family and friends to find customer reviews you trust.

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Want to borrow? Now you’re ready

Now that you have a better understanding about the basics of an installment loan, you may be ready to research borrowing options with more confidence — and choose what's best for you.

As you explore your options, consider checking to see if you prequalify for a personal loan with OneMain. OneMain offers loans from $1,500 to $30,000. If you decide to apply and are approved, you could have money in hand as soon as one hour after loan closing.

This article has been updated from a previous posting on Mar 27, 2026. John Frizzera contributed.

Sources

1. https://www.bankrate.com/loans/personal-loans/what-is-an-installment-loan/
   
2. https://www.bankrate.com/mortgages/what-is-mortgage/
   
3. https://www.bankrate.com/loans/auto-loans/what-is-an-auto-loan/
   
4. https://www.nerdwallet.com/article/loans/personal-loans/personal-loan-term-length
   
5. https://www.consumerfinance.gov/ask-cfpb/how-long-does-it-take-to-pay-off-a-student-loan-en-621/
   
6. https://studentaid.gov/manage-loans/repayment
   
7. https://www.bankrate.com/loans/personal-loans/personal-loan-line-of-credit/