Will an installment loan or personal loan help your credit?



Trying to establish credit can send you in circles. Maybe you’re trying to get a credit card, but lenders won’t approve you because your credit score is too low. But that’s why you’re still trying to get a credit card: to boost your credit score.

It can be frustrating. But the good news is that there are other ways to build credit, including taking out an installment loan or personal loan. But how will an installment loan or personal loan help your credit? And what type of loan works best? Here’s what you need to know.

What is an installment loan?

Installment loans involve asking for a specific amount of money to borrow and paying it back over a set number of months, plus interest. These can be federal loans (like some student loans) or private loans (like mortgages).

Installment loans can help you build credit because you show financial responsibility when you pay them back. Since payment history accounts for 35% of your FICO score, complete and on-time payments are a huge credit boost.

Installment loans tend to have longer repayment periods, which means you’ll pay a lot more interest. For example, if you lease your car, you could make monthly payments for about three to five years.

Are installment loans a good idea?

Although generally easy to obtain, installment loans have some drawbacks. A missed payment could hurt your credit report, so if you don’t have a stable income to pay off a loan every month, it’s hard to justify getting one.

Consider interest when paying off your installment loan.

Let’s say you get a $1,000 loan with 15.00% interest to be paid off in one year. Your monthly payments would be close to $90. You’ll pay about $1,083 in total, so you’re spending an extra $83 to borrow $1,000.

What is a personal loan?

A personal loan can be a type of installment loan. You can apply for a personal loan from a bank, credit union, or other lender and pay it back with interest over a set number of months. But unlike most other installment loans, you can use it for almost anything.

If you are looking to repay a large part of your debts, for example, you can take out a personal installment loan. With a personal loan, you will generally pay less interest.

There is also a single payment personal loan, where you take out a lump sum of money and repay it all at once, usually with interest included.

Are personal loans always a bad idea?

Personal loans are a great option if you’re paying off high-interest debt or other bills quickly. But they are not for everyone.

Payday loans are a type of single-payment personal loan. Unless you are sure you can repay your loan by your next payday, payday loans should be avoided.

Getting a payday loan can put you further into debt if you don’t end up paying it back at the end of the loan term. It is better to look into other types of loans.

Will an installment loan or personal loan help your credit?

Installment loans and personal loans will help you build credit. Once you’ve been approved, adding a new account or changing your credit combination will increase your score.

Installment loans can help build credit if you have decent or even poor credit. It can take three to six months to start building credit, but it can build a solid foundation for your credit report.

Personal loans are great for getting rid of significant debt by reducing or eliminating high interest bills. You can consolidate your debt into a manageable monthly payment, usually with a low interest rate.

The best loan for you depends on your situation

Can an installment loan or personal loan help your credit when you’re looking to make it grow? Yes. The type of loan you choose should depend on where you are in your credit journey.

If you’re just starting out, a small installment loan can get you started on the right track as long as you make your payments every month. If you need to consolidate debt or pay off high-interest debt in a shorter time frame, you could take out a larger personal loan.

Whichever loan option you choose, always look at the fine print. Review your term limits, loan options and lenders. You can build credit as long as you are responsible and knowledgeable about your loans.

Interested in a personal loan?

LendingTree lets you compare rates from multiple lenders by filling out a simple form. How is the student loan hero paid?

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How is the student loan hero paid?

How is the student loan hero paid?

Student Loan Hero is compensated by the businesses on this site and this compensation may impact how and where offers appear on this site (such as ordering). Student Loan Hero does not include all lenders, savings products or loan options available in the market.

Advertiser Disclosure

Hero Loan Hero Advertiser Disclosure

Student Loan Hero is an ad-supported comparison service. The site features products from our partners as well as institutions that are not advertising partners. Although we strive to include the best deals available to the general public, we do not guarantee that this information represents all products available.

PRICES (APRIL) Amount of the loan
5.74% – 8:28 p.m.%1 $5,000 at $100,000
4.37% – 35.99% $1,000 at $50,000
5.94% – 35.97%* $1,000 at $50,000
99.00% – 199.00%2 $500 at $4,000
5.99% – 24.99%3 $5,000 at $40,000
9.99% – 35.99%4 $2,000 at $36,500

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2 Includes AutoPay rebate. .
3 Includes AutoPay rebate. .
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