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Financial products Updated: 26 Mar 2018

What an installment loan is and how to get one

According to a study from Spectrem Group's Market Insights Report 2017, there are just 10.8 million millionaires in the United States. Assuming you’re not one of them - and let’s face it, most of us aren’t - there are certain purchases that require a loan. Loans for these purchases - houses and cars among them - most often take the form of an installment loan, which begs the question: What exactly is an installment loan?

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According to BBVA Compass Executive Director of Consumer Lending Shayan Khwaja, an installment loan is exactly what it infers. A lump sum of money that pays for a purchase - like a house, a car or home repairs - and which the consumer pays back to the lender on a monthly basis (installments) with added interest until the loan is paid in full.

Khwaja: In installment loans, the monthly payments are typically fixed"

“In installment loans, the monthly payments are typically fixed, meaning the amount doesn’t change month-to-month,” Khwaja said. “In this way, the borrower knows precisely what to budget in order to meet the repayment obligation.”

Khwaja went on to say that consumers interested in obtaining an installment loan need to be aware of their personal financial situation, specifically their credit score and debt-to-income ratio, so that they know the interest rate that may be available to them. Borrowers with lower range credit scores and high debt-to-income ratios will likely have a higher interest rate than those with high credit scores and low debt-to-income ratios.

“Lenders reward borrowers that have shown they know how to manage their money over time with a better interest rate,” he said. “To make this determination, lenders ensure borrowers have a history of timely repayment of debt obligations - as shown by credit scores - and that they aren’t overleveraging themselves in terms of borrowing money either through loans or revolving credit usage compared to their income.”

Khwaja: Lenders reward borrowers that have shown they know how to manage their money over time with a better interest rate"

The size of the loan being requested and whether it’s secured with collateral, like a house for a mortgage loan, or unsecured, meaning the borrower’s signature is all that’s needed, also plays a role in determining the interest rate.

Khwaja said that borrowers looking for installment loans should comparison shop at a variety of lenders from banks to credit unions and online lenders to see where they can get the most favorable interest rate, but he cautioned that applying at a variety of institutions may include a hard pull on the consumer’s credit report, which will negatively affect their credit scores.

“It never hurts to comparison shop,” he said. “But borrowers should shy away from applying at a variety of locations so they don't inadvertently damage their credit.”

He also said it’s important for borrowers to pay attention to fees, since not all loans have them.

Khwaja: Used correctly, installment loans are a valuable financial tool for consumers needing access to credit"

He continued, “Used correctly, installment loans are a valuable financial tool for consumers needing access to credit.”

BBVA Compass offers a variety of installment loans, including its fully digital BBVA Compass Express Personal Loan.

When opened online, Express Personal Loan is an unsecured loan ranging from $2,000 to $35,000. Those applying in a branch can receive up to $100,000. For eligible applicants, only a signature is needed, and customers who have their loan payments auto-debited from a BBVA Compass consumer checking account can receive a one percent interest rate discount. BBVA Compass also offers a service that soft-pulls interested consumers’ credit for pre-qualification purposes giving them the ability to check their rate and see potential loan offers without affecting their credit score.

For more information on the Express Personal Loan, click here.