Loan guidesSix short chapters.
Everything a borrower should know.

What an installment loan is

An installment loan is a fixed amount of money, borrowed once, repaid in equal payments on a schedule until a set date. Three words do the work: fixed (the rate and payment never change), finite (there is a last payment), and amortizing (each payment covers that month's interest first and the rest reduces the balance, so interest shrinks every month).

It is the opposite of revolving credit — a card or a line — where the balance can be re-borrowed and the minimum payment can keep you paying for a decade. And it is the opposite of a payday loan, which is a lump sum due in two weeks. Mortgages, car loans and personal loans are all installment loans; the ones on this site are small, unsecured and short: $200–$5,000 over 3–24 months.

Soft vs. hard credit checks

Every lender checks something. What matters is whether the check leaves a mark. A soft inquiry lets a lender view your file without recording a visible inquiry; other lenders can't see it and your score doesn't move. Pre-qualification, rate checks and employer screenings are soft. A hard inquiry is recorded when you actually apply for credit; it's visible to other lenders and typically costs a few points for up to a year.

Lenders in our network use a soft check to make offers and a hard check only after you accept one — so looking is free, and one hard pull for a loan you take is normal. "No credit check" ads describe either a soft check or a product that skips checks and charges 300% for it.

APR vs. interest rate

The interest rate is the price of borrowing the principal. The Annual Percentage Rate adds any required fees — an origination fee, say — and expresses the whole cost as one yearly percentage. On a loan with no fees the two are identical; with fees, APR is higher, which is exactly why it's the number the law requires and the number to compare offers by.

One more thing APR hides: time. A 36% APR over 6 months costs far less in dollars than 24% over 24 months. So compare APR to compare lenders, and compare total of payments to compare offers of different lengths.

Payday vs. installment

A payday loan is $100–$1,000 due in full on your next payday, priced as a fee — $15 to $30 per $100 — which works out to 300–400% APR. The design flaw is the lump sum: most borrowers can't repay $1,150 two weeks after needing $1,000, so they pay the fee again to roll it over. The CFPB found most payday fees are paid by people stuck in rollover cycles.

An installment loan spreads the same $1,000 over months at a fixed payment. The APR looks high next to a credit card and tiny next to payday — and there is no rollover to get stuck in. Credit-union payday alternative loans (PALs) are the cheapest version of the same idea, capped at 28% APR.

How to read a loan agreement

A consumer loan agreement is long because the law requires it to be complete, not because it's hiding things. Read it in this order and it takes ten minutes:

• The TILA box (chapter six) — APR, finance charge, amount financed, total of payments. If the total fits your plan, keep reading; if not, stop here.
• Payment schedule — first payment date, amount, frequency, last payment date. Line the first one up with payday.
• Fees — origination (deducted from the loan, already inside the APR), late, returned payment. Each capped by your state.
• Prepayment — look for "no prepayment penalty." Lenders in our network have none.
• Autopay authorization — what account, what dates, how to revoke it (you always can).
• Credit reporting — whether the lender reports, and to which bureaus. This decides whether on-time payments help your file.
• Rescission / cancellation — any window to return the funds at no cost.
• Dispute resolution — arbitration clause and any opt-out deadline (often 30 days). Note it.

The Truth in Lending box

Since 1968 the federal Truth in Lending Act has required every consumer lender to disclose the same four numbers, in the same box, before you sign. They're the only four numbers you need to compare any two loans — ours or anyone's.

How to use it: total of payments tells you the whole cost; APR lets you compare lenders fairly; finance charge is the price in dollars; amount financed is what you actually receive (after any origination fee). An offer missing any of the four isn't a legal consumer loan offer — walk away.