Here’s What You Need to Know About Installment Loans For Poor Credit

Chang Fu
May 31, 2020

What are monthly installment loans for bad credit?

So what’s a monthly installment loan? A monthly installment loan is a loan that’s repaid over time with a set number of scheduled monthly payments. For example, it could have 6 scheduled monthly payments and therefore, the loan matures and is fully paid off 6 months from now. As for bad credit - that usually pertains to people who have a 650 credit score or lower. Officially, FICO considers anything below 580 poor but in practice, it’ll be difficult for you to qualify for affordable personal loans, installment loans, and credit cards with a credit score under 650.

Therefore, a monthly installment loan for bad credit is usually a shorter-term installment loan that you can qualify for with no or bad credit, will usually have a higher annual percentage rate of interest (APR), and may contain stricter and less flexible repayment terms. We’ll go over some of the qualifications, terms, and options for monthly installment loans for those with bad credit scores. Evaluate your options and choose the best monthly installment loan for your situation.

How does bad or no credit affect qualification and pricing?

Having bad or no credit will prevent you from qualifying for monthly installment loans with certain providers, especially many traditional banks, credit unions, and online loan providers. However, even though having limited options is not ideal, there are installment loan providers like Possible Finance and others that do help folks with bad or no credit.

Banks, online lenders, and other installment loan lenders who allow for bad or no credit may sometimes still check your FICO or Vantage credit score. These lenders may allow for lower FICO or Vantage credit scores, such as below 600. Other providers don’t use your credit score at all. Instead of your credit score, they’ll look at other data such as your bank transaction details or alternative credit data such as Clarity Services or FactorTrust that compile other credit data on folks who have a “thin” credit score file. Having a “thin” credit score file means you don’t have much information on your traditional FICO or Vantage credit report.

Once you qualify, having bad or no credit may result in higher fees, higher APR, and less flexible repayment. Fortunately with Possible Finance and a few other lenders, you’ll have no application fees, the same APR, and the same flexible repayment options regardless of your credit score. Possible doesn’t penalize its customers for having a low or no credit score.

Get up to $500 with no credit score required

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Common terms related to bad credit installment loans

Below are some common terms related to monthly installment loans that you should know:

Application. The application for an installment loan is the process of requesting the loan. Information such as your ID, bank account information, and current income may be required as part of the application. The direct lender may also check your credit score. The application process of a bad credit installment loan may take anywhere from a few minutes for some lenders and up to a few days for other lenders.

Default. This is when you cannot pay back your loan. The lender will likely contact you and you may also get calls from a debt collection agency. If you are in default or expect to be in default, plan ahead and know your options. Learn more about what happens if you default on your loan.

Interest. Interest is the cost of borrowing money and is usually quoted as an annual percentage rate (APR). The interest fee of your monthly installment loan will be included in the monthly payment.

Principal. Principal is the original amount of the installment loan you borrowed. Every month as part of your monthly installment loan, you will be paying back a portion of the principal of your loan. If your monthly payments are equal throughout the term of your loan, you will pay back less principal during initial periods of your loan versus more during the later periods of your loan.

Monthly Payment. The monthly payment on the loan is how much you are required to pay every month. The monthly payment includes both principal and interest and is usually deducted directly from your bank account on a predetermined date.

Term. The term is the length of the loan. For example, if you get a 1-year loan, the term of the loan is 1 year. Once the term ends, you’ll have paid off your loan.

Credit Score. Credit score usually refers to your FICO or Vantage credit score which is 300-850. A higher credit score may allow you to qualify for more money, get cheaper interest rates, and have more flexibility on your loan. Some lenders will not check your credit score and have alternative ways to determine whether they will lend to you.

Origination Fee. An origination fee may be charged when you are approved and you take your loan. This is common for mortgages and other larger installment loans. Be wary of any large origination fees for a shorter term or small-dollar installment loan.

Prepayment Fee. Some direct lenders may charge a prepayment fee if you pay back your loan early. Although uncommon, read the fine print of your loan and make sure you have the flexibility to pay the installment loan back early if you want to.

Installment loans for bad credit vs payday loans

How similar are bad credit installment loans to payday loans? They’re similar in some ways but quite different in other ways.

For example, fees and APRs can be similar. Although payday loans average 400% APR or higher in many states, installment loans for those with bad credit can be high and in triple-digit APR territory as well. Because an installment loan is repaid over time and has a much longer-term than a payday loan, the total amount of interest payments can equal just as much as the principal or even more! If you get a high APR installment loan with a term of multiple years, you could end up paying many times more interest than principal over the life of the loan.

Depending on the lender, installment loans can help you rebuild credit history. For example, Possible Finance reports all payments to the three major credit bureaus: Experian, TransUnion, and Equifax. That allows customers to build positive payment history and build up credit history so they can qualify for cheaper financing and other credit products in the future.

Lastly, installment loans can have greater flexibility due to repayment over time. Some lenders such as Possible have a late payment grace period with no fees and charges. Payday loans on the other hand are due on your next payday and if you can’t pay back, rolling over the loan can be expensive and punitive, putting you in a vicious cycle of debt.

Five direct lenders that offer installment loans for bad credit

Avant

The quick take

  • Get secured and unsecured loans up to $30,000 at APRs under 36% for a few years
  • Minimum credit score of 600 and there will be a hard pull if you accept the loan
  • Linked bank account with automatic payment required
  • Administration fee of 4.75% will be deducted from your loan amount
  • Not available in every state like Colorado, West Virginia, Iowa, and Vermont

Summary

Avant is an online lender founded in Chicago, Illinois in 2012 and has issued billions in loans to various borrowers, mostly in the 600 to 700 credit score range. If you apply, expect your credit to be checked and you’ll need at least a 600 credit score to qualify. In addition, you’ll need a bank account with an online login with automatic payments so Avant can directly deduct scheduled loan payments from your account.

The direct lender offers secured loans (auto title loans) as well as unsecured personal loans up to about $30,000 and the funds can be disbursed in 1-2 days. APRs can range from 10% up to 36% depending on your credit score and other underwriting criteria they have such as income. In addition, there is an administration fee of 4.75% on the loan - in other words, if you borrow $10,000, plan ahead and expect to receive $9,525 after taking into account the $475 administration fee. Lastly, there are late fees but no prepayment fees.

Folks who borrow from Avant use the loan for debt consolidation, personal expenses, emergency bills, and other things. Monthly payments are reported to the three major credit bureaus: Experian, TransUnion, and Equifax so if you lack credit history, on-time payments may build positive credit history.

Final verdict

Use Avant if you have a credit score between 600 and 700 and can’t qualify for any lower APR products. It can be useful to consolidate multiple payday loans into a bigger loan from Avant that’s lower interest and drops your total interest payments and fees.

Your local credit union

The quick take

  • Get up to $2,000 with APRs at affordable APRs lower than 28%
  • Only 1 in 7 credit unions offer payday alternative loans (PALs)
  • Terms can be a few months up to a year
  • You’ll need to visit your local credit union and you may need to be a member
  • Most credit unions will report payments to credit bureaus

Summary

Some local credit unions will offer payday alternative loans (PALs). PALs are regulated by the National Credit Union Administration and were created in 2010 as a better option for borrowers than traditional payday loans and bad credit installment loans from lenders.

These PALs from credit unions cannot have an APR over 28%, have a max application fee of $20, and have terms from one month up to a year. In 2019, a second PAL option was added, allowing borrowers to get anywhere from $200 to $2,000 through a PAL. Sounds like a great deal? It is, if you qualify and if you have a local credit union offering them to you.

You don’t need the best credit score to get a PAL but many credit unions will check your credit score and may even have a minimum. Repayments can be reported to the credit bureaus, allowing you to rebuild your credit.

Final verdict

Use a payday alternative loan (PAL) from a credit union if you are a member of a credit union that offers it. Although it may take time to qualify and you’ll need to visit a branch in person, the APRs and long term length makes it one of the best options, if you can get one.

Possible Finance

The quick take

  • Borrow up to $500 in minutes through their mobile app with 150-250% APR
  • No FICO or Vantage credit score check
  • Bank account w/ online login, smartphone, and ID needed
  • Build positive credit history by repaying on time over 2 months
  • Reschedule payments up to 29 days later (grace period)

Summary

Possible Finance has installment loans with a 2-3 month term that’s repaid bi-weekly. It’s unique in that you can apply and manage your loan only through its clean and fast mobile app. Instead of checking your credit score, Possible will ask you to link your bank account. That’s how the direct lender determines whether your loan will be approved - they will check your income through the bank link. You’ll also need an ID and working phone number to submit an application.

Once approved, you can receive the money directly on a debit card in minutes or funded to your bank account in 1-2 business days. One of the best parts about Possible Finance is the repayment flexibility and ability to build credit. If you can’t pay back on time, you can reschedule payments on your own, directly through their app. There’s no charges or fees for rescheduling. In addition, payments are reported to the credit bureaus so as long as you’re paying on time, you should build up a positive credit history and boost your credit score.

Final verdict

Use Possible Finance if you have a bad credit score or no credit score at all because they will be one of the few direct lenders willing to approve for up to $500 even with no job. They’re also a good option if you’re looking to rebuild your credit score.

Oportun

The quick take

  • Borrow up to $8,000 at APRs ranging from 20% to 70% with terms of 7 to 40 months
  • Soft credit check that won’t affect your credit score
  • No bank account needed - you can receive the loan on a prepaid card or via check
  • Payments are reported to 2 out of the 3 major credit bureaus
  • English and Spanish support but only live in 11 states currently

Summary

Formerly called Progreso Financiero, Oportun mostly operates in South and Southwest states like Texas, Florida, Arizona, California, and others. Many of the customers Oportun serves are Hispanic and Oportun offers support in multiple languages - English and Spanish. The direct lender offers monthly installment loans up to a 40-month term with APRs averaging about 35%. If you apply, Oportun may check your credit score (but your score will not be impacted) or run other credit checks specifically for those with a “thin” credit file.

Don’t have a bank account? No problem - you can accept the loan in the form of a check or prepaid card. However, read the fine print and understand the possible fees and restrictions for taking the loan through a check or prepaid card. Payments on the loan are reported to Experian and TransUnion so that you can build credit history.

What will you need to apply? You’ll need income verification, ID, verified address and phone number, and you’ll need to live in one of the states it operates in. You will not need a bank account. You can apply for an installment loan from Oportun online or in one of its physical stores. In addition to monthly installment loans for those with bad or no credit, Oportun offers auto loans and credit cards as well.

Final verdict

Use Oportun if you can’t qualify for cheaper APR loans and you don’t have a bank account. If you’re a Spanish speaker, the communication with Oportun might be better as well.

OppLoans

The quick take

  • Borrow up to $5,000 at APRs ranging from 60% to 200%
  • Live in 13 states and term is up to 18 months in most states
  • Requires minimum income, a bank account, and ID
  • Reports to all 3 major credit bureaus in most cases
  • No FICO or Vantage credit score check but lender may check with alternative bureaus

Summary

OppLoans started in 2012 and aims to offer short-term installment loans for borrowers as an alternative to traditional payday loans. With APRs up to 200%, its interest rates are high but not as high as the average payday loan at 300 to 400%. Borrowers can repay in up to 18 months and to apply, you’ll need a minimum income of $1,500, an online bank account, and identification. In addition, OppLoans may run a credit check with an alternative credit bureau for those with “thin” credit files.

OppLoans operates in 13 states, the major ones being Texas, Illinois, and George. The online lender is also live in 20+ other states through its bank partner FinWise. As you pay back your installment loan from OppLoans, the lender will report payments to all three major credit bureaus for most of its borrowers, with few exceptions. Lastly, OppLoans has an online education portion to help borrowers learn about budgeting and spending through OppU.

Final verdict

Use OppLoans if you can’t qualify for other low APR loans and if you have a low or no credit score and you need a longer-term loan up to a year.

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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