What is a Personal Installment Loan?

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  • Written By: Ken Black
  • Edited By: C. Wilborn
  • Last Modified Date: 07 September 2019
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A personal installment loan is a loan made to a private party that is paid back in smaller payments little by little. The most common type of loans are those which are paid back monthly, and involve a payment that combines principal and interest. They are generally different than revolving credit loans in that the loans are issued on a one-time basis. Interest rate percentages are based on the bank's standard rates, plus considerations for personal credit history and possibly other factors.

A personal installment loan may be tied to collateral, or may be completely unsecured. Banks tend to try to use credit cards for those who are interested in an unsecured loan. This offers the financial institution a chance to make money above and beyond the original purchase the card may be used for, but is no longer considered an installment loan but a revolving credit line. Secured loans will offer the lending institution more security and therefore often come with a lower interest rate. Therefore, choosing a secured loan is also of benefit to the responsible borrower.

In order to get the best deal on a personal installment loan, a number of issues need to be thoroughly researched. First, the borrower should wait until interest rates are low, if possible. Second, he should maintain a good credit rating. Third, he should research all options, both for secured and unsecured loans.


A borrower should be sure to work as closely as he can with the lender. Establishing a good relationship means keeping the lender informed of what the loan is for and its progress. Being able to come up with a significant down payment of 20% or more could also help garner a favorable interest rate.

The most common personal installment loans are those used to finance a home or a car. Those for homes are often called mortgages, but they are truly nothing but secured installment loans. If an individual defaults on a secured personal installment loan, he or she is in danger of having the financed product, either a home or car, revert to the ownership of the lending institution.

Those who choose to get a personal installment loan should understand that a default does not mean the individual is free and clear of the debt. Even if the borrower defaults and a car is repossessed or a home is foreclosed upon, the borrower could still be liable for some of the money. If the lender cannot get the outstanding balance back by re-selling the item, the borrower could be required to come up with the outstanding difference and this could be imposed by a court order.


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