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As of the second quarter of 2024, 23.9 million Americans had a personal loan—an increase from 22.7 million in the same period last year. That’s nearly 9% of the adult population! Whether you’re managing a medical expense, handling an unexpected emergency, or planning a big purchase, installment loans are a practical way to access the funds you need.
Let’s look at the different types of installment loans and how they can help you tackle life’s financial challenges.
Before we get into the types of installment loans, let’s get on the same page about what these loans are in the first place. According to the Federal Reserve's Survey of Consumer Finances, the median savings account balance for Americans is about $8,000. However, this figure doesn’t tell the whole story. A significant portion of Americans have little or no savings, and many are unable to cover even a $400 emergency expense.
This financial gap is where installment loans can be quite the lifeline.
Installment loans are a type of loan that provides a lump sum upfront, which is repaid over time in fixed, scheduled payments. These loans offer several key features:
The benefits of installment loans are pretty clear. Their consistency makes budgeting more manageable, while their flexibility means they can address many financial needs, from unexpected expenses to planned purchases.
The thing to understand here is that installment loan is a blanket term for many different types of loans that offer predictable payments and repayment schedules. The specific type of installment loan you get will depend on your needs.
Here are the most common installment loan types.
Personal loans are unsecured loans designed to cover a range of personal expenses, such as debt consolidation, medical bills, or unexpected emergencies. These loans don’t require collateral and are available through banks, credit unions, and online lenders. Common uses include funding home improvements, weddings, or even vacations.
Auto loans are secured loans specifically for purchasing vehicles. The vehicle itself is collateral for the loan, typically with repayment terms ranging from 36 to 72 months. These loans are commonly used for buying new or used cars. And, because these are secured loans with the car itself being the collateral, the interest rate is often lower than that of a personal loan.
Few people have the money in their bank account to pay for a home outright. So, mortgages are long-term, secured loans designed for purchasing or refinancing a home. These loans often require a down payment and a strong credit history to qualify for favorable terms. Repayment periods generally span 15 to 30 years.
Home equity loans allow homeowners to borrow against the equity they’ve built in their property. These secured loans provide a lump sum disbursement and are frequently used for large expenses like home renovations, debt consolidation, or emergencies. The repayment terms and interest rates are often favorable due to the collateral involved.
Student loans are tailored to cover education-related expenses. They can be federal or private, often offering deferred repayment while borrowers are still in school. Commonly used for tuition, books, and living expenses, student loans typically have a lower interest rate than other loan types because the funds must be specifically allocated toward education-related expenses.
The average debt per adult in the U.S. is around $66,772. And often, that debt sits in many different places—credit cards, loans, etc. With that much debt, making all those minimum payments can be frustrating, and the amount you owe each month can get out of hand.
Debt consolidation loans are designed to combine multiple debts into one payment. These loans often have lower interest rates than credit cards, making them a practical choice for managing high-interest debt.
Payday Alternative Loans (PALs) are short-term installment loans offered by credit unions. They provide a safer and more manageable option compared to traditional payday loans, featuring lower interest rates and reasonable repayment terms. PALs are commonly used to address small financial emergencies without the high costs associated with payday loans.
If you are looking to consolidate your debt or need some extra funds to help cover an expense, an installment loan can be a lucrative option. Ready to get started? Apply today.
