Will an installment loan or personal loan help your credit?

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Trying to build credit can drive you around in circles. You might be 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 a 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 repaying it 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 build credit because you are financially responsible when paying them off. Since payment history is 35% of your FICO score, on-time and full 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 certain drawbacks. A missed payment could hurt your credit report, so if you don’t have a stable income to pay off a loan each month, it’s hard to justify getting one.

Take interest into account when paying off your installment loan.

Say you get a $ 1,000 loan with 15.00% interest to pay off in one year. Your monthly payments would be close to $ 90. You will pay about $ 1,083 in total, so you spend an additional $ 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 off with interest over a number of months. But unlike most other installment loans, you can use it for almost anything.

If you’re looking to pay off a large portion of your debt, for example, you can take out a personal installment loan. With a personal loan, you will generally pay less interest.

There is also a one-time payment personal loan, where you take out a sum of money and pay it off all at once, usually with interest included.

Are personal loans always a bad idea?

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

Payday loans are a type of one-time personal loan. Unless you are sure you can repay your loan when it comes time for your next payday, payday loans should be avoided.

Getting a payday loan can put you in more debt if you don’t pay it off 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 are approved, adding a new account or varying your credit mix 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 provide a solid foundation for your credit report.

Personal loans are great for get rid of a large debt by reducing or eliminating high interest bills. You can consolidate your debt to have one 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 looking to rebuild it? 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 monthly payments. If you need to consolidate your debt or pay off high interest debt over a shorter period of time, 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 create credit as long as you are responsible and knowledgeable about your loans.

Interested in a personal loan?

LendingTree allows you to compare the rates of several lenders by filling out a simple form. How is the student loan hero paid

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

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How is the student loan hero paid

How is the student loan hero paid

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

Advertiser Disclosure

Hero Student Loan Advertiser Disclosure

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

PRICES (APR) Amount of the loan
5.99% – 18.85%1 $5,000 To $100,000
6.46% – 35.99% $1000 To $50,000
5.94% – 35.97%* $1000 To $50,000
99.00% – 199.00%2 $500 To $4000
5.99% – 24.99%3 $5,000 To $40,000
7.99% – 29.99%4 $7,500 To $40,000

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1 Includes AutoPay discount. .
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3 Includes AutoPay discount. .
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