Loans are ways to realise long nourished dreams for many people. For some, loans are necessary to get out from a bad situation. For others, it may be an important decision that can have an impact on their life. Nonetheless, loans are important part our lives.

Loans whether secured or unsecured offer the much-needed help to a person who needs it the most. While secured loans are given on condition of collaterals, unsecured loans do not require any collateral security for the approval of the loan. Unsecured loans are perceived as an easily available option as they do not need any collateral security.

An installment loan is a type of unsecured loan. Installment loans can accommodate the convenience of the borrower as they can be borrowed for short-term like 4-5 years or on a long-term basis with a higher loan amount.

Some of the features of Installment loans

  • Installment loans are quick and relatively simple to get. The loan application process is very simple.
  • People who are looking for a quick financial back up for a short-term look towards installment loans for the financial support.
  • People also use installment loans as a tool to rebuild their credit scores.
  • Those who have taken installment loans can certainly expect a better credit report if they are making their loan payments on time.
  • People with better credit scores have high chances of getting a better deal on interest rates and reduced fee when they have an excellent credit report.
  • Installment loans are not given to specific purposes unlike mortgages, car loans, etc. The installment loan amount can be used to anything such as paying medical bills, insurance; clearing off the amount you may have borrowed from your relative, etc.
  • Installment loan payments are equally spread throughout the payment schedule unlike the payday loans wherein the interest rate is higher and the loan amount is paid in full by borrowers’ next payday schedule.
  • The installment loan payments would not vary all through the repayment schedule.
  • The repayment schedule can designed as per the borrower’s preferred date.

When should you consider an installment loan?

An installment loan is a quick financial support that anybody who qualifies for the loan requirements can get.


  • When the borrower needs urgent cash for emergencies etc.
  • When the borrower is sure to make the installment loan payments on time.
  • The borrower can opt for an installment loan if he or she has poor credit ratings and have a desire to improve their credit scores.
  • The installment loans are not used just to improve credit scores; these loans serve the financial needs of the people.

How affordable is the installment loan in comparison to other loans?

  • Installment loans can be affordable or not based on many factors.
  • The installment loan as a debt consolidation option for paying off the loan amount especially for credit cards can cost a lot cheaper.
  • In general, installment loans may have 8% to10% interest rate while the borrower’s credit card loan might have a higher interest rate such as 23% to 25%.
  • When the borrower is benefitting from the installment loans in terms of loan amount, interest rates, loan fees and repayment schedule, installment loans can be affordable to such borrowers.

Other situations where you may consider installment loans

  • You might have the necessary funds to pay for your purchase. However, you may decide not to spend your savings, so that you have an emergency fund. Instead, you plan to avail an installment loan at a lower interest rate.
  • If you have a reward credit card that pays back certain % on your purchase, you may pay for that purchase at a lower interest rate than the payback %.

Decoding the installment loan

Installment loans are the most preferred type of unsecured loans that are borrowed for automobiles or appliances by consumers. The installment loan interest rates are much lower compared to the credit card interest fees. The buyer makes the purchase at a lower interest rate by borrowing an installment loan while the dealer experiences a high sales turnout. In case of car and appliance purchase market, installment debts are beneficial to both buyer and the seller.

Installment loans and credit scores

Improvement of credit score

Can installment loans build credit scores? Installment loans are known as credit score builders. Such loans help the borrowers to slowly improve their credit scores when the regular payments are made on time.

When a borrower borrows an installment loan for a longer repayment term, he or she will stand a good chance to improve their credit scores. It is due to the fact that credit scores cannot be improved over night. The longer the payment history the better chances of credit score improvement. The 30% of credit report consists of your consistent repayment history.


A good repayment history leads to a better credit account history that forms the 15% of your total credit scores. One such example of an installment loan that is good for building credit account history is the student loan. Student loan will have longer loan term such as 10-20 years. Borrowers can also consider auto or car loans that typically last for 5-7 years.

Installment loan alone cannot lift your credit scores. However, the borrower can make prompt repayments on various credits that he or she may have to improve their credit scores significantly.

We at advice and encourage our customers to apply for installment loans exclusively for their financial needs and not to build just credit scores.

Early repayment of installment loan amount and credit scores

We at have been asked by many borrowers about the impact of early payment of installment loans on the credit scores. Credit scores improve due to consistent and long payment history. As we stated earlier, 30% of the borrower’s credit scores consist of payment history.

Paying off your installment loan as soon as possible may seem like a nice idea. But it does not necessarily lift your credit scores. If you want to recover from poor credit, maintaining a solid payment history will be beneficial for your credit report.

Benefits of installment loans

  1. Installment loans are instant and easy to get.
  2. Installment loans are unsecured loans which do not require any collateral security.
  3. Since there are no collateral securities, many people consider it risk-free.
  4. Installment loans can serve the borrowers in two ways- they are approved quickly and can be helpful for an immediate financial need and they also help borrowers to maintain a good payment history and credit account history.
  5. For people with better scores chances of a lower interest rate are more when it comes to installment loans.
  6. Installment loan interest rates are much lower than credit card interest rates.
  7. The interest rates for installment payments are fixed. A borrower is expected to pay a certain agreed amount as interest rate unlike credit card interest rates that are variable.


  • The installment loan is not flexible. Installment loans have fixed repayment amount, interest rate and loan payment term. So, if a borrower goes through a rough patch financially and fails to make payments for installment loans, he or she cannot expect renegotiations. The agreed amount and interest rates must be paid on time.
  • Fixed interest rates can be good but it can also be inconvenient to the borrower when there is a decreased interest rate in the market.

Who will benefit from installment loans?

  • Students and youngsters who may lack necessary financial support.
  • People who are financial savvy who know how to benefit from low interest rates.
  • Retired who survive on low monthly income. And may need financial assistance for various needs including health and life insurance, home renovations or travels.
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Installment loans are helpful to many people who require financial assistance without a collateral. Installment loans also benefit the borrower with a lower interest rate compared to the credit card interest rates. Borrowers can handle their financial crisis with a quick loan, and they can also build better credit scores. Credit scores can be improved when the payment history is consistent and long, credit scores are improved significantly.

However, borrowers should not borrow installment loans just for the sake of credit score improvement. The borrowers should consider applying for an installment loan when they have a financial need.

Installment loans have their advantages and disadvantages. Installment loans can be a blessing, and they can be the cause of financial distress. Hence, a borrower should know how the installment loans affect the finances and credit reports.

The intelligent borrowing of installment loans can save a lot of money, and it can also build an amazing credit account history and payment history. We at encourage our customers to educate themselves about installment loans to gain benefits.