Whether you’re poised to consolidate debt or eager to embark on home improvements using a personal loan, loans can serve as a vital financial lifeline to meet your needs. Financing options generally fall into two categories: installment and revolving.

With an installment loan, you receive a lump sum upfront, which you repay in regular, predetermined installments. This structured repayment schedule facilitates easy budgeting and provides the reassurance of knowing exactly when you will be debt-free. Installment loans often have a fixed interest rate, ensuring predictable monthly payments for the life of the loan. For borrowers looking to finance a large amount for a personal project, installment loans make for easy budgeting and a seamless repayment plan.

Revolving loans or lines of credit allow you to borrow up to a certain limit and repay the balance over time. This type of financing typically features a variable interest rate, which means your payments can fluctuate based on market conditions.

Understanding the unique features of installment loans can help you make an informed decision about your financial future.

Key Considerations

Installment loans provide a lump sum upfront, repaid in designated installments with a fixed interest rate, which simplifies budgeting and ensures clarity on debt repayment timelines.
Installment loans may be secured or unsecured, and they offer substantial funding options tailored to specific financial goals, whether for home improvements or debt consolidation.
While installment loans offer stability, understanding their repayment terms, potential fees, and impact on credit scores is essential for making an informed borrowing decision.

What Is an Installment Loan?

An installment loan is a closed-end credit account that allows you to access a lump sum of money and repay it according to a predetermined schedule at regular intervals. Mortgages, auto loans, and personal loans are well-known examples of installment loans. Many installment loans feature a fixed interest rate, ensuring that the rate remains constant throughout the life of the loan.

Installment loans can be either unsecured, requiring no collateral, or secured, necessitating collateral such as real estate or a vehicle to back the loan. When repaying an installment loan, each payment is divided between the principal balance and interest. Typically, the interest portion of your payments declines over time as the principal portion increases. Once you have paid the loan in full, the account is closed, marking the end of your obligation.

An installment loan’s structured approach to borrowing provides predictability and stability in your financial planning and offers a clear path to debt resolution.

How Do Installment Loans Work?

Getting an installment loan follows a straightforward process: you select the product that fits your needs, verify your eligibility, apply, review the terms, and receive the funding.

Choose the Right Product

With a variety of loan options available, thorough research is crucial to find the loan that best suits your needs. For example, if you have multiple credit cards racking up interest charges, a debt consolidation installment loan may make more sense financially. Additionally, installment loans can be used to cover other large costs, such as home improvements.

Check Qualifications and Apply

Qualifications vary depending on the lender and the financial product. Many lenders will assess the following:

Credit Score: For unsecured installment loans, which do not require collateral, lenders often rely on your credit score and other indicators of financial responsibility to determine eligibility.
Collateral: If you can secure an installment loan with collateral such as real estate or equipment, you may qualify for more favorable terms, including a lower interest rate. However, remember that if you default on the loan, the lender can sell the collateral to recover their losses.
Personal Income: Lenders need assurance that you can make timely loan payments, so they will typically consider your personal income when making their lending decision.

Understand the Payment Duration and Repayment Terms

You will repay an installment loan over a period of months or years, depending on the loan terms. Some lenders offer extended repayment periods, which can significantly reduce the monthly payment amount. Repayment terms vary by lender and will specify what actions are permissible during the repayment period. For instance, some lenders allow early repayment without penalty, while others may impose an early repayment fee. It is crucial to fully understand the loan terms before committing to avoid any unexpected charges later.

Receive Funding

Once approved for an installment loan, you will typically receive the funds in one lump sum. These funds are available for personal needs, providing flexibility in how you use them. Whether you’re looking to consolidate debt or cover a home improvement project, an installment loan offers quick and efficient access to the capital you need.

The Pros and Cons of Installment Financing

Before committing to an installment loan, it is essential to understand both the advantages and disadvantages.

Installment Loan Benefits

Predictable Repayment Schedule: Many installment loans feature a fixed interest rate, ensuring that your monthly payments and the total amount due over the loan’s duration are predetermined. This predictability simplifies debt management compared to revolving debt, where payment amounts can fluctuate.
Potential to Improve Credit Score: Installment loan payments are typically reported to major credit bureaus. A consistent history of on-time payments can boost your credit score. However, verify whether the lender reports a positive payment history, as some may only report missed payments, which can negatively impact your score. Similarly, some lenders may not report positive or negative information to credit bureaus, which can provide privacy and prevent potential negative impacts on credit scores from minor missed payments.
Access to Large Sums of Money: Installment loans provide access to significant lump sums. For instance, qualified borrowers at BHG Financial can obtain up to $200,0001,, offering substantial funding for various needs.

Installment Loan Drawbacks

Commitment to a Set Term: While the fixed repayment schedule aids in budgeting, it also means you are committed to regular payments over several years. Any changes in your financial situation will not alter your obligation to repay the loan. Missing payments can adversely affect your credit score.
Lack of Flexibility: Unlike revolving credit, installment loans do not offer flexibility in terms of borrowing additional funds once the loan is approved. If unexpected expenses arise, you may need to seek additional financing.
Potentially High Fees: In addition to loan origination fees, some lenders impose other charges, such as prepayment penalties, if you attempt to repay the loan early. These fees can increase the overall cost of the loan.

How BHG Financial’s Installment Loans Can Improve Your Finances

BHG Financial offers highly specialized financing up to $200,000¹ for personal loans, which you can use to reach your personal and professional objectives. With repayment terms of up to 10 years^1,2, you can use our installment loans to consolidate debt, complete a home renovation, and more. Our dedicated, U.S.-based concierge service is available around your schedule, meaning you can rely on our team to serve your needs every step of the way.

Get started by viewing your personalized estimate in seconds using our payment estimator. 

Installment Financing FAQs

Do installment loans hurt your credit?

Installment loans will not typically hurt your credit as long as you repay the balance due plus interest and fees on time and in full. Failure to make timely payments could have negative implications for your credit score.

What is the difference between an installment loan and a regular loan?

An installment loan is a type of closed-end credit in which you receive a lump sum balance and then pay back the balance over a set term. Other debt may be revolving, meaning you can borrow up to a certain credit limit and pay back the balance due on what you’ve spent.

What credit score is needed for an installment loan?

The credit score you’ll need to qualify for an installment loan varies by lender. Higher credit scores that fall into the good, very good, or exceptional range tend to qualify you for the most favorable interest rates on installment loans.

¹Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant's credit profile. Finance amount may vary depending on the ap-plicant's state of residence.

²Personal Loan Repayment Example: A $59,755 personal loan with a 7-year term and an APR of 17.2% would require 84 monthly payments of $1,229.

Annual percentage rates (APRs) for BHG Financial personal loans range from 11.96% to 24.91%, with terms from 3 to 10 years.

No application fees, commitment, or impact on personal credit to estimate your payment.

Consumer loans funded by Pinnacle Bank, a Tennessee bank or County Bank. Equal Housing Lender.

For California Residents: BHG Financial loans made or arranged pursuant to a California Financing Law license - Number 603G493.

IMPORTANT INFORMATION ABOUT ESTABLISHING A NEW CUSTOMER RELATIONSHIP
To help the government fight the funding of terrorism and money laundering activities, Federal law re-quires all financial institutions to obtain, verify and record information that identifies every customer. What this means for you: When you apply for a loan, we will ask for your name, address, date of birth, social security number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If all required documentation is not provided, we may be unable to establish a customer relationship with you.