Installment loans: fixed payments, very different prices
An installment loan is repaid in equal payments over several months or years. The structure is easier to manage than a payday loan's single payment, but prices vary widely, from under 10% APR at a credit union to several times the 36% ceiling at a high-cost lender.
Key points
- You repay in fixed payments, usually over 3 to 24 months.
- APR varies from single digits to triple digits depending on the lender and state.
- A longer term lowers the payment and raises the total cost.
- Compare the total of payments, not only the monthly amount.
On this page
How installment loans work
You borrow a set amount and repay it in equal payments on a fixed schedule. Each payment covers interest and part of the principal, so the balance falls with every payment and the loan ends on a known date. Small installment loans typically run from $500 to $5,000 over 3 to 24 months.
What they cost
The same $1,000 loan can cost very different amounts:
| Lender type | APR | 12 monthly payments | Total interest |
|---|---|---|---|
| Credit union | 18% | About $92 | About $100 |
| Online lender, good credit | 36% | About $100 | About $205 |
| High-cost lender | Far above 36% | $170 or more | $1,000 or more |
High-cost lenders are allowed in some states and banned in others. Around twenty states and D.C. cap small installment loans at or near 36% APR; elsewhere much higher rates are legal. Your state’s page shows which rules apply to you.
A worked example: $1,000 over 12 months
| APR | Monthly payment | Total repaid | Cost of credit |
|---|---|---|---|
| 9.99% | $87.91 | $1,054.92 | $54.92 |
| 19.99% | $92.63 | $1,111.56 | $111.56 |
| 28.00% | $96.51 | $1,158.12 | $158.12 |
| 35.99% | $100.46 | $1,205.52 | $205.52 |
The figures assume twelve equal monthly payments with interest charged each month on the remaining balance. The monthly payment rises slowly as the rate climbs, which is why it is a poor guide to price. Compare the total repaid. A credit union payday alternative loan is capped at 28%; 35.99% is the most a loan may cost to meet the Northlight standard.
Installment loan or payday loan?
A payday loan demands the whole amount plus the fee in one payment after about two weeks. An installment loan divides repayment into amounts that fit a budget. That makes default less likely, but a long, high-rate installment loan can cost more in total than a short payday loan. Always compare the total of payments.
What to check before you sign
- APR and finance charge, both printed on the federal disclosure box.
- Total of payments: the full amount you will have paid at the end.
- Prepayment: can you pay early without a penalty and save interest?
- Add-ons: credit insurance and similar products are optional and raise the cost.
- The license: verify the lender with your state regulator.
If your credit is poor
Lenders that accept low scores price for the risk. A credit union payday alternative loan (up to $2,000, capped at 28% APR) or a secured loan is usually cheaper. If you do use a high-cost lender, choose the shortest term whose payment you can reliably make. Related reading: bad credit loans and payday loan alternatives.
Refinancing and renewals
Some lenders invite you to refinance before the loan is paid off. Each refinance can add fees and restart the interest clock. Ask how much you would owe in total after refinancing, and compare it with simply finishing the current loan.
To see how named lenders price their loans, read loans like Upstart, OppLoans and RISE, which lists twelve lenders with their published APR ranges.
Common questions
How is an installment loan different from a payday loan?
A payday loan is repaid in one payment within weeks. An installment loan is repaid in equal payments over months, so each payment is smaller.
Can I get an installment loan with bad credit?
Many lenders accept poor credit and charge more for it. Approval depends on income and existing debts, and no advertisement can promise it.
How much can I borrow?
Small installment loans usually range from $500 to $5,000. State law can limit both the amount and the rate.
Can I pay off an installment loan early?
Most states prohibit prepayment penalties on small loans, but check your agreement. Paying early reduces the interest you owe.
Does Northlight lend money?
No. Northlight is an information site. We explain costs and state rules; we do not make loans or credit decisions.
See the payment before you apply
Pick an amount and a term. The calculator shows the monthly payment, the total and the cost of credit at the highest APR we allow.
Sources
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