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Installment loan: What it is & its Features

By Tata Capital
22 June 2026
10 mins read
3412

Installment loans allow borrowers to borrow fixed amounts and repay them in predetermined tenures. They can be secured or unsecured. Some examples of installment loans include home loans, auto loans, and personal loans. The interest rate, eligibility criteria, and loan terms may vary depending on the type of loan and the lender’s policy. Borrowers should compare different options, understand all charges, and assess their repayment capacity before applying. Choosing a legitimate lender and making timely EMI payments can also help maintain a healthy credit profile.

An installment loan is a loan that is repaid through fixed monthly installments over a predetermined tenure.

An installment loan is a type of borrowing where a borrower receives a fixed amount of money and agrees to repay it in regular, predetermined installments over a set period. Each payment includes both principal and interest, resulting in gradual repayment of the loan until it is fully paid off.

An installment loan can be a good option when you have a well-defined goal, such as purchasing a vehicle, managing education expenses, or covering business expenditures.

With installment loans, you know how much you must pay monthly, allowing you to plan your finances accordingly. Installment loans boost your credit score when you pay the monthly installments on time.

What are installment loans?

In an installment loan, the lender gives you the entire loan amount and allows you to repay it in regular, fixed installments, usually on a monthly basis.

The factors that determine the monthly installments are the principal amount, interest rate, and repayment duration. Once the installment amount is decided, it often stays the same, and you can prepare ahead for the necessary payments.

What are the different types of installment loans?

There are various types of installment loan, but the major one includes secured and unsecured loan:

1. Secured Installment Loan

This type of installment loan requires collateral as security. The collateral can be any asset worth equal to or close to the loan amount. These can be vehicles, property, or savings accounts.

Lenders often give a lower interest rate because of the collateral involved. If you do not repay the loan at the agreed time, the lender can sell the collateral and recover the outstanding amount.

2. Unsecured Installment Loan

This type of loan does not require collateral. The lender assesses the borrower’s credit score, financial history, and income before granting the loan.

The loan amount is usually less than a secured loan and has higher interest rates.

Examples of secured and unsecured installment loans

Some examples of secured and unsecured installment loans include:

a. Personal Loan

Personal installment loans can be used for various reasons, including debt consolidation, special event funding, medical bill payments, and home improvements.

You can get a personal installment loan from non-banking financial companies (NBFCs), credit unions, and banks.

Unsecured personal loans are generally more prevalent than secured loans.

b. Home Loan

A home loan is an example of a secured installment loan. The home you purchase often serves as collateral, which helps to lower the interest rate.

However, if you do not repay the loan, the lender can claim the property through a legal process.

c. Vehicle Loan

vehicle loan is a loan specially obtained to buy a vehicle. The lender provides you with the funds needed to purchase a vehicle, and that vehicle serves as collateral.

The lender offers you a lower interest rate, and if you cannot pay at the due time, they gain the legal rights to own the vehicle purchased.

d. Student Loan

This loan is offered to help students finance their higher education. It can be obtained from various financial institutions.

The terms and conditions, including the interest rate and the qualification requirements, differ based on the lender. Therefore, it is essential that you find the lender with the best installment loans before applying.

What are the key features and benefits of installment loans?

Installment loans come with several features and benefits that make them a popular choice among many borrowers. Here are a few notable installment credit features you must know:

Scheduled repayments: Installment loans are repaid through structured monthly installments.
Suitable for long-term needs: Installment loans can help fund long-term financial needs, such as buying a home or car.
Fixed repayment tenure: The repayment tenure is typically fixed and known to the borrower before disbursement.
Refinancing options: In many cases, lenders offer refinancing flexibility on installment loans.
Fixed or floating interest rate: The interest rate can be fixed or floating, depending upon the borrower’s selection at the time of disbursal.

What are the eligibility criteria for installment loans?

The eligibility criteria depend heavily on the type of installment loan. For example, the criteria for a high-value loan, such as a home loan, may differ from those of a personal loan or auto loan. Furthermore, the requirements may vary from one lending institution to another.

Having said that, there are a few common factors that usually define installment loan eligibility criteria across lenders. These include the borrower’s age, income, employment status, and credit score. Understanding how these factors impact the eligibility can help borrowers prepare their loan applications accordingly.

● Minimum age and income requirements

The minimum age to apply for installment loans with most lenders ranges between 18 and 21 years. A few lenders may also have a maximum age criterion.

Apart from the borrower’s age, lenders also look at their income and employment stability when approving loan applications. The minimum monthly income requirement depends on the type and quantum of the loan. Being employed with a reputed employer or a well-known company also helps.

● Credit score requirements

A borrower’s credit score is a three-digit number that reflects their creditworthiness. It is one of the most important factors lenders consider when approving installment loan applications. It gives them an idea of the borrower’s repayment capacity and their experience with debt. A good credit score automatically improves the chances of loan approval. On the flip side, a lower score may lead to an outright rejection or strict loan terms. A credit score of 750 or more is usually considered good by most lenders.

What are the interest rates and charges for installment loans?

The interest rates for installment loans are not the same for every borrower. They usually depend on the type of loan, lender’s policies, and the applicant’s financial profile. Interest rates for secured loans, such as home loans and auto loans, are usually lower than those for unsecured loans, such as personal loans. Furthermore, lenders offer lower interest rates to borrowers with high credit scores and stable incomes.

Apart from the interest rates, lenders may levy the following charges on installment loans:

Processing fee: It is usually charged as a small percentage of the loan amount to cover administrative costs incurred by the lender during loan approval and processing.
Late payment penalty: A flat penalty charge is levied if the borrower fails to pay the EMI on time.
EMI bounce charge: This is different from the late payment fee. It is charged only when the EMI payment is bounced due to insufficient account balance or another reason.
Foreclosure charge: It is levied when a borrower repays the loan amount before the end of its tenure.

For a detailed breakdown of interest rates and charges, you can refer to the sanction letter or loan agreement.

How do installment loans affect your credit score?

An installment loan can affect your credit score in both ways. It depends on how you manage your repayment. Paying all your loan EMIs on time can actually help you build your credit score. It shows that you are a responsible borrower and increases your chances of getting more loans in the future. On the other hand, delayed or missed EMI payments can stain your credit history and hurt your CIBIL score.

That is why it is crucial to pay your loan EMIs on time. You can sign up for the auto-debit facility to ensure automatic deduction of the EMIs from your bank account.

Can you get an installment loan with bad credit?

Yes, it is possible to get an installment loan with bad credit, but the final decision depends on the lender. Different lenders may have different policies for approving loan applications. While some lenders may outright reject applications from borrowers with a bad credit history, others may approve them based on their income level and repayment capacity. They may also look at factors such as the borrower’s employment stability, existing debt obligations, and the type of loan being applied for.

However, borrowers with a weak credit profile may not get the same loan terms. The lender may offer a lower loan amount, shorter repayment tenure, or a higher interest rate to compensate for the lending risk.

What is the step-by-step process to apply for an installment loan?

A few common questions borrowers sometimes ask are where can I get an installment loan and how I can apply for it. Most banks and non-banking financial institutions in India allow you to apply for installment loans online through a few straightforward steps:

Decide on the type of installment loan you need.
Visit the lender’s website and fill out an online installment loan application form.
Upload the required documents one by one.
Wait for the lender’s verification of the documents and collateral (if any).
Once verified, the lender issues a sanction letter, mentioning detailed loan terms.
Read the sanction letter carefully and sign up for the disbursement.

What are the pros and cons of installment loans?

While installment loans can make large purchases easier, they come with certain disadvantages. Comparing both pros and cons can help you make the right borrowing decision.

Pros:

These loans can help fund major personal and business-related financial requirements.
You can choose the loan tenure as per your repayment capacity.
EMIs usually remain fixed throughout the loan tenure. This makes monthly financial planning easier.
You can choose between fixed or floating interest rate options.
Timely EMI payments can help you improve your credit score.
Various types of installment loans are designed to address different financial needs.
Online installment loans allow you to access funds from the convenience of your home.

Cons:

You are required to pay interest on the borrowed amount.
Processing fees and late payment charges can further escalate your borrowing cost.
Paying regular EMIs can sometimes become difficult.
Missed or delayed EMI payments can hamper your credit score.
Loan default may result in legal action against you.

Should you choose an installment loan?

An instant loan can be a good option to meet your planned or unplanned financial needs. It allows you to borrow a specific amount and repay it through Equated Monthly Installments (EMIs) within a fixed tenure. However, you must carefully analyze your financial needs and repayment capacity before applying.

Make sure that you can comfortably repay the EMIs. Avoid opting for a higher loan amount unnecessarily. It is equally important to apply through a legit installment loans provider. Doing so can help you avoid fraud and unwanted hassles later. Do read the loan agreement carefully before signing the dotted line.

In essence, an installment loan can be a useful financial tool when borrowed for the right purpose, from the right lender, and with a clear repayment plan.

Conclusion

An installment loan can be a great option if you want a lump sum amount with a fixed repayment structure. Tata Capital offers attractive installment loans ranging from personal to home loans at competitive rates. You can apply for installment loans online through the Tata Capital website and get the necessary funds.

Visit Tata Capital!

FAQs

What is the difference between installment loans and revolving credit?

An installment loan gives you a fixed amount that is repaid through regular EMIs over a set period. Revolving credit, on the other hand, allows you to borrow repeatedly within an approved limit as long as the dues are managed.

Are installment loans better than credit cards?

It depends on the purpose. Installment loans are often preferred for larger expenses that need long-term repayment. Credit cards are generally more suitable for smaller and short-term spending that can be cleared quickly.

Can I prepay an installment loan early?

Yes, many lenders allow borrowers to repay the loan before the end of the tenure. However, the rules may differ from one lender to another. Some lenders may also charge a prepayment or foreclosure fee.

Do installment loans require collateral?

Not always. Some installment loans, such as home and vehicle loans, are secured and require collateral. Others, such as personal loans, are unsecured. The requirement depends on the type of loan and the lender's policy.

What happens if I miss an EMI payment?

Missing an EMI may lead to additional charges and can also affect your credit history. If payments remain overdue for a long time, the lender may start recovery action according to the terms of the loan agreement.

How long does it take to get an installment loan approved?

The approval time depends on the lender and the type of loan. Some digital lenders process applications quickly, while larger loans may take more time because of document checks and verification procedures.

Can self-employed individuals apply for installment loans?

Yes, many lenders offer installment loans to self-employed applicants. However, they may be asked to provide proof of income, business records, and bank statements to show that they can manage the repayments.

Is there a penalty for late payment on installment loans?

Many lenders charge a late payment fee if an EMI is not paid by the due date. The exact amount and rules differ from one lender to another. Hence, borrowers should always review the loan agreement carefully.

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